Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-22450 December 3, 1924

YU CHUCK, MACK YUENG, and DING MOON, plaintiffs-appellees, vs. "KONG LI PO," defendant-appellant.

J. W. Ferrier for appellant. G. E. Campbell for appellees.

OSTRAND, J.:

The defendant is a domestic corporation organized in accordance with the laws of the Philippine Islands and engaged in the publication of a Chinese newspaper styled Kong Li Po. Its articles of incorporation and by-laws are in the usual form and provide for a board of directors and for other officers among them a president whose duty it is to "sign all contracts and other instruments of writing." No special provision is made for a business or general manager.

Some time during the year 1919 one C. C. Chen or T. C. Chen was appointed general business manager of the newspaper. During the month of December of that year he entered into an agreement with the plaintiffs by which the latter bound themselves to do the necessary printing for the newspaper for the sum of P580 per month as alleged in the complaint. Under this agreement the plaintiffs worked for the defendant from January 1, 1920, until January 31, 1921, when they were discharged by the new manager, Tan Tian Hong, who had been appointed in the meantime, C. C. Chen having left for China. The letter of dismissal stated no special reasons for the discharge of the plaintiffs.

The plaintiffs thereupon brought the present action alleging, among other things, in the complaint that their contract of employment was for a term of three years from the first day of January, 1920; that in the case of their discharge by the defendant without just cause before the expiration of the term of the contract, they were to receive full pay for the remaining portion of the term; that they had been so discharged without just cause and therefore asked judgment for damages in the sum of P20,880.

In its amended answer the defendant denies generally and specifically the allegations of the complaint and sets up five special defenses and counterclaims. The first of these is to the effect that C. C. Chen, the person whose name appears to have been signed to the contract of employment was not authorized by the defendant to execute such a contract in its behalf. The second special defense and counterclaim is to the effect that during the month of January, 1921, the plaintiffs purposely delayed the issuance of defendant's newspaper on three separate and distinct occasions causing damage and injury to the defendant in the amount of P300. Under the third special defense and counterclaim it is alleged that the plaintiffs failed, neglected, and refused to prepare extra pages for the January 1, 1921, issue of the defendant's newspaper and thus compelled the defendant to secure the preparation of said extra pages by other persons at a cost of P110. In the fourth special defense and counterclaim the defendant alleged that the plaintiffs neglected and failed to correct errors in advertisements appearing in defendant's newspaper, although their attention was specifically called to such errors and they were requested to make the corrections, as a result of which certain advertisers withdrew their

patronage from the paper and refused to pay for the advertisements, thus causing a loss to the defendant of P160.50. For its fifth special defense and counterclaim the defendant alleged that the plaintiffs neglected and refused to do certain job printing such neglect and refusal causing injury and damage to the defendant in the sum of P150.

At the trial of the case the plaintiffs presented in evidence Exhibit A which purports to be a contract between Chen and the plaintiffs and which provides that in the event the plaintiffs should be discharged without cause before the expirations of the term of three years from January 1, 1920, they would be given full pay for the unexpired portion of the term "even if the said paper has to fall into bankruptcy." The contract is signed by the plaintiffs and also bears the signature "C. C. Chen, manager of Kong Li Po." The authenticity of the latter signature is questioned by the defendant, but the court below found that the evidence upon this point preponderate in favor of the plaintiffs and there appears to be no sufficient reason to disturb this finding.

The trial court further found that the contract had been impliedly ratified by the defendant and rendered judgment in favor of the plaintiffs for the sum of P13,340, with interest from the date of the filing of the complaint and the costs. From this judgment the defendant appeals to this court and makes eighteen assignments of error. The fourth and seventeenth assignments relate to defendant's special defense and counterclaims; the sum and substance of the other assignments is that the contract on which the action is based was not signed by C. C. Chen; that, in any event, C. C. Chen had no power or authority to bind the defendant corporation by such contract; and that there was no ratification of the contract by the corporation.

Before entering upon a discussion of the questions raised by the assignments of error, we may draw attention to a matter which as not been mentioned either by counsel or by the court below, but which, to prevent misunderstanding, should be briefly explained: It is averred in the complaint that it is accompanied by a copy of the contract between the parties (Exhibit A) which copy, by the terms of the complaint, is made a part thereof. The copy is not set forth in the bill of exceptions and aside from said avernment, there is no indication that the copy actually accompanied the complaint, but an examination of the record of the case in the Court of First Instance shows that a translation of the contract was attached to the complaint and served upon the defendant. As this translation may be considered a copy and as the defendant failed to deny its authenticity under oath, it will perhaps be said that under section 103 of the Code of Civil Procedure the omission to so deny it constitutes an admission of the genuineness and due execution of the document as well as of the agent's authority to bind the defendant. (Merchant vs. International Banking Corporation, 6 Phil., 314.)

In ordinary circumstances that would be true. But this case appears to have been tried upon the theory that the rule did not apply; at least, it was wholly overlooked or disregarded by both parties. The plaintiffs at the beginning of the trial presented a number of witnesses to prove the due execution of the document as well as the agent's authority; no objections were made to the defendant's evidence in refutation and no exceptions taken; and the matter is not mentioned in the decision of the trial court.

The object of the rule is "to relieve a party of the trouble and expense of proving in the first instance an alleged fact, the existence or nonexistence of which is necessarily within the knowledge of the adverse party, and of the necessity (to his opponent's case) of establishing which such adverse party is notified by his opponent's pleading." (Nery Lim-Chingco vs. Terariray, 5 Phil., at p. 124.)law phi 1.net

The plaintiff may, of course, waive the rule and that is what he must be considered to have done in the present case by introducing evidence as to the execution of the document and failing to object to the defendant's evidence in refutation; all this evidence is now competent and the case must be decided thereupon. Moreover, the question as to the applicability of the rule is not even suggested in the briefs and is not properly this court. In these circumstances it would, indeed, be grossly unfair to

the defendant if this court should take up the question on its own motion and make it decisive of the case, and such is not the law. Nothing of what has here been said is in conflict with former decisions of this court; it will be found upon examination that in all cases where the applicability of the rule has been sustained the party invoking it has relied on it in the court below and conducted his case accordingly.

The principal question presented by the assignments of error is whether Chen had the power to bind the corporation by a contract of the character indicated. It is conceded that he had no express authority to do so, but the evidence is conclusive that he, at the time the contract was entered into, was in effect the general business manager of the newspaper Kong Li Po and that he, as such, had charge of the printing of the paper, and the plaintiff maintain that he, as such general business manager, had implied authority to employ them on the terms stated and that the defendant corporation is bound by his action. The general rule is that the power to bind a corporation by contract lies with its board of directors or trustees, but this power may either expressly or impliedly be delegated to other officers or agents of the corporation, and it is well settled that except where the authority of employing servants and agent is expressly vested in the board of directors or trustees, an officer or agent who has general control and management of the corporation's business, or a specific part thereof, may bind the corporation by the employment of such agent and employees as are usual and necessary in the conduct of such business. But the contracts of employment must be reasonable. (14a C. J., 431.)

In regard to the length of the term of employment, Corpus Juris says:

In the absence of express limitations, a manager has authority to hire an employee for such a period as is customary or proper under the circumstances, such as for a year, for the season, or for two season. But unless he is either expressly authorized, or held out as having such authority, he cannot make a contract of employment for a long future period, such as for three years, although the contract is not rendered invalid by the mere fact that the employment extends beyond the term of the manager's own employment. . . . (14a C. J., 431.)

From what has been said, there can be no doubt that Chen, as general manager of the Kong Li Po, had implied authority to bind the defendant corporation by a reasonable and usual contract of employment with the plaintiffs, but we do not think that the contract here in question can be so considered. Not only is the term of employment unusually long, but the conditions are otherwise so onerous to the defendant that the possibility of the corporation being thrown into insolvency thereby is expressly contemplated in the same contract. This fact in itself was, in our opinion, sufficient to put the plaintiffs upon inquiry as to the extent of the business manager's authority; they had not the rights to presume that he or any other single officer or employee of the corporation had implied authority to enter into a contract of employment which might bring about its ruin.

Neither do we think that the contention that the corporation impliedly ratified the contract is supported by the evidence. The contention is based principally on the fact that Te Kim Hua, the president of the corporation for the year 1920, admitted on the witness stand that he saw the plaintiffs work as printers in the office of the newspaper. He denied, however, any knowledge of the existence of the contract and asserted that it was never presented neither to him nor to the board of directors. Before a contract can be ratified knowledge of its existence must, of course, be brought home to the parties who have authority to ratify it or circumstances must be shown from which such knowledge may be presumed. No such knowledge or circumstances have been shown here. That the president of the corporation saw the plaintiffs working in its office is of little significance; there were other printers working there at that time and as the president had nothing to do with their employment, it was hardly to be expected that be would inquire into the terms of their contracts. Moreover, a ratification by him would have been of no avail; in order to validate a contract, a ratification by the board of directors was necessary. The

fact that the president was required by the by-laws to sign the documents evidencing contracts of the corporation, does not mean that he had power to make the contracts.

In his decision his Honor, the learned judge of the court below appears to have placed some weight on a notice inserted in the January 14th issue of the Kong Li Po by T. C. Chen and which, in translation, reads as follows:

To Whom It May Concern: Announcement is hereby given that thereafter all contracts, agreements and receipts are considered to be null and void unless duly signed by T. C. Chen, General Manager of this paper.

(Sgd.) CHEN YOU MAN General Manager of this paper

(The evidence shows that Chen You Man and T. C. Chen is one and the same person.)

His Honor evidently overestimated the importance of this notice. It was published nearly a month after the contract in question is alleged to have been entered into and can therefore not have been one of the circumstances which led the plaintiffs to think that Chen had authority to make the contract. It may further be observed that the notice confers no special powers, but is, in effect, only an assertion by Chen that he would recognize no contracts, agreements, and receipts not duty signed by him. It may be presumed that the contracts, agreements, and receipts were such as were ordinarily made in the course of the business of managing the newspaper. There is no evidence to show that the notice was ever brought to the attention of the officers of the defendant corporation.

The defendant's counterclaims have not been sufficiently established by the evidence.

The judgment appealed from is reversed and the defendant corporation is absolved from the complaint. No costs will be allowed. So ordered.

Johns, Avanceña and Romualdez, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-38816 November 3, 1933

INSULAR DRUG CO., INC., plaintiff-appellee, vs. THE PHILIPPINE NATIONAL BANK, ET AL., defendants. THE PHILIPPINE NATIONAL BANK, appellant.

Camus and Delgado for appellant. Franco and Reinoso for appellee.

MALCOLM, J.:

This is an appeal taken by Philippine National Bank from a judgment of the Court of First Instance of Manila requiring bank to pay to the Insular Drug Co., Inc., the sum of P18,285.92 with legal interest and costs.

The record consists of the testimony of Alfred Von Arend, President and Manager of the Insular Drug Co., Inc., and of exhibits obtained from the Philippine National Bank showing transactions of U.E. Foerster with the bank. The Philippine National Bank was content to submit the case without presenting evidence in its behalf. The meagre record and the statement of facts agreed upon by the attorneys for the contending parties disclose the following facts:

The Insular Drug Co., Inc., is a Philippine corporation with offices in the City of Manila. U.E. Foerster was formerly a salesman of drug company for the Islands of Panay and Negros. Foerster also acted as a collector for the company. He was instructed to take the checks which came to his hands for the drug company to the Iloilo branch of the Chartered Bank of India, Australia and China and deposit the amounts to the credit of the drug company. Instead, Foerster deposited checks, including those of Juan Llorente, Dolores Salcedo, Estanislao Salcedo, and a fourth party, with the Iloilo branch of the Philippine National Bank. The checks were in that bank placed in the personal account of Foerster. Some of the checks were drawn against the Bank of Philippine National Bank. After the indorsement on the checks was written "Received payment prior indorsement guaranteed by Philippine National bank, Iloilo Branch, Angel Padilla, Manager." The indorsement on the checks took various forms, some being "Insular Drug Company, Inc., By: (Sgd.) U. Foerster, Agent. (Sgd.) U. Foerster" other being "Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster, Agent (Sgd.) Carmen E. de Foerster"; others "Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster, Carmen E. de Froster"; others "(Sgd.) Carmen E. de Foerster, (Sgd.) Carmen E. de Foerster"; one (Sgd.) U. Foerster. (Sgd.) U. Foerster"; others; "Insular Drug Co., Inc., Carmen E. de Foerster, By: (Sgd.) V. Bacaldo," etc. In this connection it should be explained that Carmen E. de Foerster was his stenographer. As a consequence of the indorsements on checks the amounts therein stated were subsequently withdrawn by U. E., Foerster and Carmen E. de Foerster.

Eventually the Manila office of the drug company investigated the transactions of Foerster. Upon the discovery of anomalies, Foerster committed suicide. But there is no evidence showing that the bank

knew that Foerster was misappropriating the funds of his principal. The Insular Drug Company claims that it never received the face value of 132 checks here in the question covering a total of P18,285.92. lawphil.net

There is no Philippine authority which directly fits the proven facts. The case of Fulton Iron Works Co., vs. China Banking Corporation ([1930], 55 Phil., 208), mentioned by both parties rest on a different states of facts. However, there are elementary principles governing the relationship between a bank and its customers which are controlling.

In first place, the bank argues that the drug company was never defrauded at all. While the evidence on the extent of the loss suffered by the drug company is not nearly as clear as it should be, it is a sufficient answer to state that no such special defense was relied upon by the bank in the trial court. The drug company saw fit to stand on the proposition that checks drawn in its favor were improperly and illegally cashed by the bank for Foerster and placed in his personal account, thus making it possible for Foerster to defraud the drug company, and the bank did not try to go back of this proposition.

The next point relied upon by the bank, to the effect that Foerster had implied authority to indorse all checks made out in the name of the Insular Drug Co., Inc., has even less force. Not only did the bank permit Foerster to indorse checks and then place them to his personal account, but it went farther and permitted Foerster's wife and clerk to indorse the checks. The right of an agent to indorse commercial paper is a very responsible power and will not be lightly inferred. A salesman with authority to collect money belonging to his principal does not have the implied authority to indorse checks received in payment. Any person taking checks made payable to a corporation, which can act only by agent does so at his peril, and must same by the consequences if the agent who indorses the same is without authority. (Arcade Realty Co. vs. Bank of Commerce [1919], 180 Cal., 318; Standard Steam Specialty Co., vs. Corn Exchange Bank [1917], 220 N.Y., 278; People vs. Bank of North America [1879], 75 N.Y., 547; Graham vs. United States Savings Institution [1870], 46 Mo., 186.) Further speaking to the errors specified by the bank, it is sufficient to state that no trust fund was involved; that the fact that bank acted in good faith does not relieve it from responsibility; that no proof was adduced, admitting that Foerster had right to indorse the checks, indicative of right of his wife and clerk to do the same , and that the checks drawn on the Bank of the Philippine Islands can not be differentiated from those drawn on the Philippine National Bank because of the indorsement by the latter.

In brief, this is a case where 132 checks made out in the name of the Insular Drug Co., Inc., were brought to the branch office of the Philippine National Bank in Iloilo by Foerster, a salesman of the drug company, Foerster's wife, and Foerster's clerk. The bank could tell by the checks themselves that the money belonged to the Insular Drug Co., Inc., and not to Foerster or his wife or his clerk. When the bank credited those checks to the personal account of Foerster and permitted Foerster and his wife to make withdrawals without there being made authority from the drug company to do so, the bank made itself responsible to the drug company for the amounts represented by the checks. The bank could relieve itself from responsibility by pleading and proving that after the money was withdrawn from the bank it passed to the drug company which thus suffered no loss, but the bank has not done so. Much more could be said about this case, but it suffices to state in conclusion that bank will have to stand the loss occasioned by the negligence of its agents.

Overruling the errors assigned, judgment of the trial court will be affirmed, the costs of this instance to be paid by appellant.

Villa-Real, Hull, Imperial, and Butte, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-42465 November 19, 1936

INTERNATIONAL FILMS (CHINA), LTD., plaintiff-appellant, vs. THE LYRIC FILM EXCHANGE, INC., defendant-appellee.

J. W. Ferrier for appellant. Juan T. Santos and Arsenio Solidum for appellee.

VILLA-REAL, J.:

This is an appeal taken by the plaintiff company International Films (China), Ltd. from the judgment of the Court of First Instance of Manila dismissing the complaint filed by it against the defendant company the Lyric Film Exchange, Inc., with costs to said plaintiff.

In support of its appeal the appellant assigns six alleged errors as committed by the court a quo in its said judgment, which will be discussed in the course of this decision.

The record shows that Bernard Gabelman was the Philippine agent of the plaintiff company International Films (China), Ltd. by virtue of a power of attorney executed in his favor on April 5, 1933 (Exhibit 1). On June 2, 1933, the International Films (China), Ltd., through its said agent, leased the film entitled "Monte Carlo Madness" to the defendant company, the Lyric Film Exchange, Inc., to be shown in Cavite for two consecutive days, that is, on June 1 and 2, 1933, for 30 per cent of the receipts; in the Cuartel de España for one day, or on June 6, 1933, for P45; in the University Theater for two consecutive days, or on June 8, and 9, 1933, for 30 per cent of the receipts; in Stotsenburg for two consecutive days, or on June 18 and 19, 1933, for 30 per cent of the receipts, and in the Paz Theater for two consecutive days, or on June 21 and 22, 1933, for 30 per cent of the receipts (Exhibit C). One of the conditions of the contract was that the defendant company would answer for the loss of the film in question whatever the cause. On June 23, 1933, following the last showing of the film in question in the Paz Theater, Vicente Albo, then chief of the film department of the Lyric Film Exchange, Inc., telephoned said agent of the plaintiff company informing him that the showing of said film had already finished and asked, at the same time, where he wished to have the film returned to him. In answer, Bernard Gabelman informed Albo that he wished to see him personally in the latter's office. At about 11 o'clock the next morning, Gabelman went to Vicente Albo's office and asked whether he could deposit the film in question in the vault of the Lyric Film Exchange, Inc., as the International Films (China) Ltd. did not yet have a safety vault, as required by the regulations of the fire department. After the case had been referred to O'Malley, Vicente Albo's chief, the former answered that the deposit could not be made inasmuch as the film in question would not be covered by the insurance carried by the Lyric Film Exchange, Inc. Bernard Gabelman then requested Vicente Albo to permit him to deposit said film in the vault of the Lyric Film Exchange, Inc., under Gabelman's own responsibility. As there was a verbal contract between Gabelman and the Lyric Film Exchange Inc., whereby the film "Monte Carlo Madness" would be shown elsewhere, O'Malley agreed and the film was deposited in the vault of the defendant company under Bernard Gabelman's responsibility.

About July 27, 1933, Bernard Gabelman severed his connection with the plaintiff company, being succeeded by Lazarus Joseph. Bernard Gabelman, upon turning over the agency to the new agent, informed the latter of the deposit of the film "Monte Carlo Madness" in the vault of the defendant company as well as of the verbal contract entered into between him and the Lyric Film Exchange, Inc., whereby the latter would act as a subagent of the plaintiff company, International Films (China) Ltd., with authority to show this film "Monte Carlo Madness" in any theater where said defendant company, the Lyric Film Exchange, Inc., might wish to show it after the expiration of the contract Exhibit C. As soon as Lazarus Joseph had taken possession of the Philippine agency of the International Films (China) Ltd., he went to the office of the Lyric Film Exchange, Inc., to ask for the return not only of the film "Monte Carlo Madness" but also of the films "White Devils" and "Congress Dances". On August 13 and 19, 1933, the Lyric Film Exchange, Inc., returned the films entitled "Congress Dances" and "White Devils" to Lazarus Joseph, but not the film "Monte Carlo Madness" because it was to be shown in Cebu on August 29 and 30, 1933. Inasmuch as the plaintiff would profit by the showing of the film "Monte Carlo Madness", Lazarus Joseph agreed to said exhibition. It happened, however, that the bodega of the Lyric Film Exchange, Inc., was burned on August 19, 1933, together with the film "Monte Carlo Madness" which was not insured.

The first question to be decided in this appeal, which is raised in the first assignment of alleged error, is whether or not the court a quo erred in allowing the defendant company to amend its answer after both parties had already rested their respective cases.

In Torres Viuda de Nery vs. Tomacruz (49 Phil., 913, 915), this court, through Justice Malcolm, said:

Sections 109 and 110 of the Philippine Code of Civil Procedure, relating to the subjects of Variance and Amendments in General, should be equitably applied to the end that cases may be favorably and fairly presented upon their merits, and that equal and exact justice may be done between the parties. Under code practice, amendments to pleadings are favored, and should be liberally allowed in furtherance of justice. This liberality, it has been said, is greatest in the early stages of a lawsuit, decreases as it progresses, and changes at times to a strictness amounting to a prohibition. The granting of leave to file amended pleadings is a matter peculiarly within the sound discretion of the trial court. The discretion will not be disturbed on appeal, except in case of an evident abuse thereof. But the rule allowing amendments to pleadings is subject to the general but not inflexible limitation that the cause of action or defense shall not be substantially changed, or that the theory of the case shall not be altered. (21 R. C. L., pp. 572 et seq.; 3 Kerr's Cyc. Codes of California, sections 469, 470 and 473; Ramirez vs. Murray [1855], 5 Cal., 222; Haydenvs. Hayden [1873], 46 Cal., 332; Hackett vs. Bank of California [1881], 57 Cal., 335; Hancock vs. Board of Education of City of Santa Barbara [1903], 140 Cal., 554; Dunphy vs. Dunphy [1911], 161 Cal., 87; 38 L. R. A. [N. S.], 818.)lawphi1.net

In the case of Gould vs. Stafford (101 Cal., 32, 34), the Supreme Court of California, interpreting section 473 of the Code of Civil Procedure of said State, from which section 110 of our Code was taken, stated as follows:

The rule is that courts will be liberal in allowing an amendment to a pleading when it does not seriously impair the rights of the opposite party — and particularly an amendment to an answer. A defendant can generally set up as many defenses as he may have. Appellant contends that the affidavits upon which the motion to amend was made show that it was based mainly on a mistake of law made by respondent's attorney; but, assuming that to be, so, still the power of a court to allow an amendment is not limited by the character of the mistake which calls forth its exercise. The general rule that a party cannot be relieved from an ordinary contract which is in its nature final, on account of a mistake of law, does not apply to

proceedings in an action at law while it is pending and undetermined. Pleadings are not necessarily final until after judgment. Section 473 of the Code of Civil Procedure provides that the court may allow an amendment to a pleading to correct certain enumerated mistakes or "a mistake in any other respect," and "in other particulars." The true rule is well stated in Ward vs. Clay (62 Cal. 502). In the case at bar evidence of the lease was given at the first trial; and we cannot see that the amendment before the second trial put plaintiff in a position any different from that which he would have occupied if the amendment had been made before the first trial.

In the case of Ward vs. Clay (82 Cal., 502, 510), the Supreme Court of said State stated:

The principal purpose of vesting the court with this discretionary power is to enable it "to mold and direct its proceedings so as to dispose of cases upon their substantial merits," when it can be done without injustice to either party, whether the obstruction to such a disposition of cases be a mistake of fact or a mistake as to the law; although it may be that the court should require a stronger showing to justify relief from the effect of a mistake in law than in case of a mistake as to matter of fact. The exercise of the power conferred by section 473 of the code, however, should appear to have, been "in furtherance of justice," and the relief, if any, should be granted upon just terms.

Lastly, in the case of Simpson vs. Miller (94 Pac., 253), the said Supreme Court of California said:

In an action to recover property which had vested in plaintiff's trustee in bankruptcy prior to the suit, an amendment to the answer, made after both parties had rested, but before the cause was submitted, pleading plaintiff's bankruptcy in bar to the action, was properly allowed in the discretion of the court.

Under the above-cited doctrines, it is discretionary in the court which has cognizance of a case to allow or not the amendment of an answer for the purpose of questioning the personality of the plaintiff to bring the action, even after the parties had rested their cases, as it causes no injustice to any of the parties, and this court will not interfere in the exercise of said discretion unless there is an evident abuse thereof, which does not exist in this case.

The second question to be decided is whether or not the defendant company, the Lyric Film Exchange, Inc., is responsible to the plaintiff, International Films (China) Ltd., for the destruction by fire of the film in question, entitled "Monte Carlo Madness".

The plaintiff company claims that the defendant's failure to return the film "Monte Carlo Madness" to the former was due to the fact that the period for the delivery thereof, which expired on June 22, 1933, had been extended in order that it might be shown in Cebu on August 29 and 30, 1933, in accordance with an understanding had between Lazarus Joseph, the new agent of the plaintiff company, and the defendant. The defendant company, on the other hand, claims that when it wanted to return the film "Monte Carlo Madness" to Bernard Gabelman, the former agent of the plaintiff company, because of the arrival of the date for the return thereof, under the contract Exhibit C, said agent, not having a safety vault, requested Vicente Albo, chief of the film department of the defendant company, to keep said film in the latter's vault under Gabelman's own responsibility, verbally stipulating at the same time that the defendant company, as subagent of the International Films (China) Ltd., might show the film in question in its theaters.

It does not appear sufficiently proven that the understanding had between Lazarus Joseph, second agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was that the defendant company would continue showing said film under the same contract

Exhibit C. The preponderance of evidence shows that the verbal agreement had between Bernard Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was that said film "Monte Carlo Madness" would remain deposited in the safety vault of the defendant company under the responsibility of said former agent and that the defendant company, as his subagent, could show it in its theaters, the plaintiff company receiving 5 per cent of the receipts up to a certain amount, and 15 per cent thereof in excess of said amount.

If, as it has been sufficiently proven in our opinion, the verbal contract had between Bernard Gabelman, the former agent of the plaintiff company, and Vicente Albo, chief of the film department of the defendant company, was a sub-agency or a submandate, the defendant company is not civilly liable for the destruction by fire of the film in question because as a mere submandatary or subagent, it was not obliged to fulfill more than the contents of the mandate and to answer for the damages caused to the principal by his failure to do so (art. 1718, Civil Code). The fact that the film was not insured against fire does not constitute fraud or negligence on the part of the defendant company, the Lyric Film Exchange, Inc., because as a subagent, it received no instruction to that effect from its principal and the insurance of the film does not form a part of the obligation imposed upon it by law.

As to the question whether or not the defendant company having collected the entire proceeds of the fire insurance policy of its films deposited in its vault, should pay the part corresponding to the film in question which was deposited therein, the evidence shows that the film "Monte Carlo Madness" under consideration was not included in the insurance of the defendant company's films, as this was one of the reasons why O'Malley at first refused to receive said film for deposit and he consented thereto only when Bernard Gabelman, the former agent of the plaintiff company, insisted upon his request, assuming all responsibility. Furthermore, the defendant company did not collect from the insurance company an amount greater than that for which its films were insured, notwithstanding the fact that the film in question was included in the vault, and it would have collected the same amount even if said film had not been deposited in its safety vault. Inasmuch as the defendant company, The Lyric Film Exchange, Inc., had not been enriched by the destruction by fire of the plaintiff company's film, it is not liable to the latter.

For the foregoing considerations, we are of the opinion and so hold: (1) That the court a quo acted within its discretionary power in allowing the defendant company to amend its answer by pleading the special defense of the plaintiff company's lack of personality to bring the action, after both parties had already rested their respective cases; (2) that the defendant company, as subagent of the plaintiff in the exhibition of the film "Monte Carlo Madness", was not obliged to insure it against fire, not having received any express mandate to that effect, and it is not liable for the accidental destruction thereof by fire.

Wherefore, and although on a different ground, the appealed judgment is affirmed, with the costs to the appellant. So ordered.

Avanceña, C. J., Abad Santos, Imperial, Diaz, Laurel, and Concepcion, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-30573 October 29, 1971

VICENTE M. DOMINGO, represented by his heirs, ANTONINA RAYMUNDO VDA. DE DOMINGO, RICARDO, CESAR, AMELIA, VICENTE JR., SALVADOR, IRENE and JOSELITO, all surnamed DOMINGO, petitioners-appellants, vs. GREGORIO M. DOMINGO, respondent-appellee, TEOFILO P. PURISIMA, intervenor-respondent.

Teofilo Leonin for petitioners-appellants.

Osorio, Osorio & Osorio for respondent-appellee.

Teofilo P. Purisima in his own behalf as intervenor-respondent.

MAKASIAR, J.:

Petitioner-appellant Vicente M. Domingo, now deceased and represented by his heirs, Antonina Raymundo vda. de Domingo, Ricardo, Cesar, Amelia, Vicente Jr., Salvacion, Irene and Joselito, all surnamed Domingo, sought the reversal of the majority decision dated, March 12, 1969 of the Special Division of Five of the Court of Appeals affirming the judgment of the trial court, which sentenced the said Vicente M. Domingo to pay Gregorio M. Domingo P2,307.50 and the intervenor Teofilo P. Purisima P2,607.50 with interest on both amounts from the date of the filing of the complaint, to pay Gregorio Domingo P1,000.00 as moral and exemplary damages and P500.00 as attorney's fees plus costs.

The following facts were found to be established by the majority of the Special Division of Five of the Court of Appeals:

In a document Exhibit "A" executed on June 2, 1956, Vicente M. Domingo granted Gregorio Domingo, a real estate broker, the exclusive agency to sell his lot No. 883 of Piedad Estate with an area of about 88,477 square meters at the rate of P2.00 per square meter (or for P176,954.00) with a commission of 5% on the total price, if the property is sold by Vicente or by anyone else during the 30-day duration of the agency or if the property is sold by Vicente within three months from the termination of the agency to apurchaser to whom it was submitted by Gregorio during the continuance of the agency with notice to Vicente. The said agency contract was in triplicate, one copy was given to Vicente, while the original and another copy were retained by Gregorio.

On June 3, 1956, Gregorio authorized the intervenor Teofilo P. Purisima to look for a buyer, promising him one-half of the 5% commission.

Thereafter, Teofilo Purisima introduced Oscar de Leon to Gregorio as a prospective buyer.

Oscar de Leon submitted a written offer which was very much lower than the price of P2.00 per square meter (Exhibit "B"). Vicente directed Gregorio to tell Oscar de Leon to raise his offer. After several conferences between Gregorio and Oscar de Leon, the latter raised his offer to P109,000.00 on June 20, 1956 as evidenced by Exhibit "C", to which Vicente agreed by signing Exhibit "C". Upon demand of Vicente, Oscar de Leon issued to him a check in the amount of P1,000.00 as earnest money, after which Vicente advanced to Gregorio the sum of P300.00. Oscar de Leon confirmed his former offer to pay for the property at P1.20 per square meter in another letter, Exhibit "D". Subsequently, Vicente asked for an additional amount of P1,000.00 as earnest money, which Oscar de Leon promised to deliver to him. Thereafter, Exhibit "C" was amended to the effect that Oscar de Leon will vacate on or about September 15, 1956 his house and lot at Denver Street, Quezon City which is part of the purchase price. It was again amended to the effect that Oscar will vacate his house and lot on December 1, 1956, because his wife was on the family way and Vicente could stay in lot No. 883 of Piedad Estate until June 1, 1957, in a document dated June 30, 1956 (the year 1957 therein is a mere typographical error) and marked Exhibit "D". Pursuant to his promise to Gregorio, Oscar gave him as a gift or propina the sum of One Thousand Pesos (P1,000.00) for succeeding in persuading Vicente to sell his lot at P1.20 per square meter or a total in round figure of One Hundred Nine Thousand Pesos (P109,000.00). This gift of One Thousand Pesos (P1,000.00) was not disclosed by Gregorio to Vicente. Neither did Oscar pay Vicente the additional amount of One Thousand Pesos (P1,000.00) by way of earnest money. In the deed of sale was not executed on August 1, 1956 as stipulated in Exhibit "C" nor on August 15, 1956 as extended by Vicente, Oscar told Gregorio that he did not receive his money from his brother in the United States, for which reason he was giving up the negotiation including the amount of One Thousand Pesos (P1,000.00) given as earnest money to Vicente and the One Thousand Pesos (P1,000.00) given to Gregorio as propina or gift. When Oscar did not see him after several weeks, Gregorio sensed something fishy. So, he went to Vicente and read a portion of Exhibit "A" marked habit "A-1" to the effect that Vicente was still committed to pay him 5% commission, if the sale is consummated within three months after the expiration of the 30-day period of the exclusive agency in his favor from the execution of the agency contract on June 2, 1956 to a purchaser brought by Gregorio to Vicente during the said 30-day period. Vicente grabbed the original of Exhibit "A" and tore it to pieces. Gregorio held his peace, not wanting to antagonize Vicente further, because he had still duplicate of Exhibit "A". From his meeting with Vicente, Gregorio proceeded to the office of the Register of Deeds of Quezon City, where he discovered Exhibit "G' deed of sale executed on September 17, 1956 by Amparo Diaz, wife of Oscar de Leon, over their house and lot No. 40 Denver Street, Cubao, Quezon City, in favor Vicente as down payment by Oscar de Leon on the purchase price of Vicente's lot No. 883 of Piedad Estate. Upon thus learning that Vicente sold his property to the same buyer, Oscar de Leon and his wife, he demanded in writting payment of his commission on the sale price of One Hundred Nine Thousand Pesos (P109,000.00), Exhibit "H". He also conferred with Oscar de Leon, who told him that Vicente went to him and asked him to eliminate Gregorio in the transaction and that he would sell his property to him for One Hundred Four Thousand Pesos (P104,000.0 In Vicente's reply to Gregorio's letter, Exhibit "H", Vicente stated that Gregorio is not entitled to the 5% commission because he sold the property not to Gregorio's buyer, Oscar de Leon, but to another buyer, Amparo Diaz, wife of Oscar de Leon.

The Court of Appeals found from the evidence that Exhibit "A", the exclusive agency contract, is genuine; that Amparo Diaz, the vendee, being the wife of Oscar de Leon the sale by Vicente of his property is practically a sale to Oscar de Leon since husband and wife have common or identical interests; that Gregorio and intervenor Teofilo Purisima were the efficient cause in the consummation of the sale in favor of the spouses Oscar de Leon and Amparo Diaz; that Oscar de Leon paid Gregorio the sum of One Thousand Pesos (P1,000.00) as "propina" or gift and not as additional earnest money to be given to the plaintiff, because Exhibit "66", Vicente's letter addressed to Oscar de Leon with respect to the additional earnest money, does not appear to have been answered by Oscar de Leon and therefore there is no writing or document supporting Oscar de Leon's testimony that he paid an additional earnest money of One Thousand Pesos (P1,000.00) to Gregorio for delivery to Vicente, unlike the first amount of One Thousand Pesos (P1,000.00) paid by Oscar de Leon to Vicente as

earnest money, evidenced by the letter Exhibit "4"; and that Vicente did not even mention such additional earnest money in his two replies Exhibits "I" and "J" to Gregorio's letter of demand of the 5% commission.

The three issues in this appeal are (1) whether the failure on the part of Gregorio to disclose to Vicente the payment to him by Oscar de Leon of the amount of One Thousand Pesos (P1,000.00) as gift or "propina" for having persuaded Vicente to reduce the purchase price from P2.00 to P1.20 per square meter, so constitutes fraud as to cause a forfeiture of his commission on the sale price; (2) whether Vicente or Gregorio should be liable directly to the intervenor Teofilo Purisima for the latter's share in the expected commission of Gregorio by reason of the sale; and (3) whether the award of legal interest, moral and exemplary damages, attorney's fees and costs, was proper.

Unfortunately, the majority opinion penned by Justice Edilberto Soriano and concurred in by Justice Juan Enriquez did not touch on these issues which were extensively discussed by Justice Magno Gatmaitan in his dissenting opinion. However, Justice Esguerra, in his concurring opinion, affirmed that it does not constitute breach of trust or fraud on the part of the broker and regarded same as merely part of the whole process of bringing about the meeting of the minds of the seller and the purchaser and that the commitment from the prospect buyer that he would give a reward to Gregorio if he could effect better terms for him from the seller, independent of his legitimate commission, is not fraudulent, because the principal can reject the terms offered by the prospective buyer if he believes that such terms are onerous disadvantageous to him. On the other hand, Justice Gatmaitan, with whom Justice Antonio Cafizares corner held the view that such an act on the part of Gregorio was fraudulent and constituted a breach of trust, which should deprive him of his right to the commission.

The duties and liabilities of a broker to his employer are essentially those which an agent owes to his principal. 1

Consequently, the decisive legal provisions are in found Articles 1891 and 1909 of the New Civil Code.

Art. 1891. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency, even though it may not be owing to the principal.

Every stipulation exempting the agent from the obligation to render an account shall be void.

xxx xxx xxx

Art. 1909. The agent is responsible not only for fraud but also for negligence, which shall be judged with more less rigor by the courts, according to whether the agency was or was not for a compensation.

Article 1891 of the New Civil Code amends Article 17 of the old Spanish Civil Code which provides that:

Art. 1720. Every agent is bound to give an account of his transaction and to pay to the principal whatever he may have received by virtue of the agency, even though what he has received is not due to the principal.

The modification contained in the first paragraph Article 1891 consists in changing the phrase "to pay" to "to deliver", which latter term is more comprehensive than the former.

Paragraph 2 of Article 1891 is a new addition designed to stress the highest loyalty that is required to an agent — condemning as void any stipulation exempting the agent from the duty and liability imposed on him in paragraph one thereof.

Article 1909 of the New Civil Code is essentially a reinstatement of Article 1726 of the old Spanish Civil Code which reads thus:

Art. 1726. The agent is liable not only for fraud, but also for negligence, which shall be judged with more or less severity by the courts, according to whether the agency was gratuitous or for a price or reward.

The aforecited provisions demand the utmost good faith, fidelity, honesty, candor and fairness on the part of the agent, the real estate broker in this case, to his principal, the vendor. The law imposes upon the agent the absolute obligation to make a full disclosure or complete account to his principal of all his transactions and other material facts relevant to the agency, so much so that the law as amended does not countenance any stipulation exempting the agent from such an obligation and considers such an exemption as void. The duty of an agent is likened to that of a trustee. This is not a technical or arbitrary rule but a rule founded on the highest and truest principle of morality as well as of the strictest justice. 2

Hence, an agent who takes a secret profit in the nature of a bonus, gratuity or personal benefit from the vendee, without revealing the same to his principal, the vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to collect the commission from his principal, even if the principal does not suffer any injury by reason of such breach of fidelity, or that he obtained better results or that the agency is a gratuitous one, or that usage or custom allows it; because the rule is to prevent the possibility of any wrong, not to remedy or repair an actual damage. 3 By taking such profit or bonus or gift or propina from the vendee, the agent thereby assumes a position wholly inconsistent with that of being an agent for hisprincipal, who has a right to treat him, insofar as his commission is concerned, as if no agency had existed. The fact that the principal may have been benefited by the valuable services of the said agent does not exculpate the agent who has only himself to blame for such a result by reason of his treachery or perfidy.

This Court has been consistent in the rigorous application of Article 1720 of the old Spanish Civil Code. Thus, for failure to deliver sums of money paid to him as an insurance agent for the account of his employer as required by said Article 1720, said insurance agent was convicted estafa. 4 An

administrator of an estate was likewise under the same Article 1720 for failure to render an account of his administration to the heirs unless the heirs consented thereto or are estopped by having accepted the correctness of his account previously rendered. 5

Because of his responsibility under the aforecited article 1720, an agent is likewise liable for estafa for failure to deliver to his principal the total amount collected by him in behalf of his principal and cannot retain the commission pertaining to him by subtracting the same from his collections. 6

A lawyer is equally liable unnder said Article 1720 if he fails to deliver to his client all the money and property received by him for his client despite his attorney's lien. 7 The duty of a commission agent to render a full account his operations to his principal was reiterated in Duhart, etc. vs. Macias. 8

The American jurisprudence on this score is well-nigh unanimous.

Where a principal has paid an agent or broker a commission while ignorant of the fact that the latter has been unfaithful, the principal may recover back the commission paid, since an agent or broker who has been unfaithful is not entitled to any compensation.

xxx xxx xxx

In discussing the right of the principal to recover commissions retained by an unfaithful agent, the court in Little vs. Phipps (1911) 208 Mass. 331, 94 NE 260, 34 LRA (NS) 1046, said: "It is well settled that the agent is bound to exercise the utmost good faith in his dealings with his principal. As Lord Cairns said, this rule "is not a technical or arbitrary rule. It is a rule founded on the highest and truest principles, of morality." Parker vs. McKenna (1874) LR 10,Ch(Eng) 96,118 ... If the agent does not conduct himself with entire fidelity towards his principal, but is guilty of taking a secret profit or commission in regard the matter in which he is employed, he loses his right to compensation on the ground that he has taken a position wholly inconsistent with that of agent for his employer, and which gives his employer, upon discovering it, the right to treat him so far as compensation, at least, is concerned as if no agency had existed. This may operate to give to the principal the benefit of valuable services rendered by the agent, but the agent has only himself to blame for that result."

xxx xxx xxx

The intent with which the agent took a secret profit has been held immaterial where the agent has in fact entered into a relationship inconsistent with his agency, since the law condemns the corrupting tendency of the inconsistent relationship. Little vs. Phipps (1911) 94 NE 260. 9

As a general rule, it is a breach of good faith and loyalty to his principal for an agent, while the agency exists, so to deal with the subject matter thereof, or with information acquired during the course of the agency, as to make a profit out of it for himself in excess of his lawful compensation; and if he does so he may be held as a trustee and may be compelled to account to his principal for all profits, advantages, rights, or privileges acquired by him in such dealings, whether in performance or in violation of his duties, and be required to transfer them to his principal upon being reimbursed for his expenditures for the same, unless the principal has consented to or ratified the transaction knowing that benefit or profit would accrue or had accrued, to the agent, or unless with such knowledge he has allowed the agent so as to change his condition that he cannot be put in status quo. The application of this rule is not affected by the fact that the principal did not suffer any injury by reason of the agent's dealings or that he in fact obtained better results; nor is it affected by the fact that there is a usage or custom to the contrary or that the agency is a gratuitous one. (Emphasis applied.) 10

In the case at bar, defendant-appellee Gregorio Domingo as the broker, received a gift or propina in the amount of One Thousand Pesos (P1,000.00) from the prospective buyer Oscar de Leon, without the knowledge and consent of his principal, herein petitioner-appellant Vicente Domingo. His acceptance of said substantial monetary gift corrupted his duty to serve the interests only of his principal and undermined his loyalty to his principal, who gave him partial advance of Three Hundred Pesos (P300.00) on his commission. As a consequence, instead of exerting his best to persuade his prospective buyer to purchase the property on the most advantageous terms desired by his principal, the broker, herein defendant-appellee Gregorio Domingo, succeeded in persuading his principal to accept the counter-offer of the prospective buyer to purchase the property at P1.20 per square meter or One Hundred Nine Thousand Pesos (P109,000.00) in round figure for the lot of 88,477 square meters, which is very much lower the the price of P2.00 per square meter or One Hundred Seventy-Six Thousand Nine Hundred Fifty-Four Pesos (P176,954.00) for said lot originally offered by his principal.

The duty embodied in Article 1891 of the New Civil Code will not apply if the agent or broker acted only as a middleman with the task of merely bringing together the vendor and vendee, who themselves thereafter will negotiate on the terms and conditions of the transaction. Neither would the rule apply if the agent or broker had informed the principal of the gift or bonus or profit he received from the purchaser and his principal did not object therto. 11 Herein defendant-appellee Gregorio Domingo was

not merely a middleman of the petitioner-appellant Vicente Domingo and the buyer Oscar de Leon. He was the broker and agent of said petitioner-appellant only. And therein petitioner-appellant was not aware of the gift of One Thousand Pesos (P1,000.00) received by Gregorio Domingo from the prospective buyer; much less did he consent to his agent's accepting such a gift.

The fact that the buyer appearing in the deed of sale is Amparo Diaz, the wife of Oscar de Leon, does not materially alter the situation; because the transaction, to be valid, must necessarily be with the consent of the husband Oscar de Leon, who is the administrator of their conjugal assets including their house and lot at No. 40 Denver Street, Cubao, Quezon City, which were given as part of and constituted the down payment on, the purchase price of herein petitioner-appellant's lot No. 883 of Piedad Estate. Hence, both in law and in fact, it was still Oscar de Leon who was the buyer.

As a necessary consequence of such breach of trust, defendant-appellee Gregorio Domingo must forfeit his right to the commission and must return the part of the commission he received from his principal.

Teofilo Purisima, the sub-agent of Gregorio Domingo, can only recover from Gregorio Domingo his one-half share of whatever amounts Gregorio Domingo received by virtue of the transaction as his sub-agency contract was with Gregorio Domingo alone and not with Vicente Domingo, who was not even aware of such sub-agency. Since Gregorio Domingo received from Vicente Domingo and Oscar de Leon respectively the amounts of Three Hundred Pesos (P300.00) and One Thousand Pesos (P1,000.00) or a total of One Thousand Three Hundred Pesos (P1,300.00), one-half of the same, which is Six Hundred Fifty Pesos (P650.00), should be paid by Gregorio Domingo to Teofilo Purisima.

Because Gregorio Domingo's clearly unfounded complaint caused Vicente Domingo mental anguish and serious anxiety as well as wounded feelings, petitioner-appellant Vicente Domingo should be awarded moral damages in the reasonable amount of One Thousand Pesos (P1,000.00) attorney's fees in the reasonable amount of One Thousand Pesos (P1,000.00), considering that this case has been pending for the last fifteen (15) years from its filing on October 3, 1956.

WHEREFORE, the judgment is hereby rendered, reversing the decision of the Court of Appeals and directing defendant-appellee Gregorio Domingo: (1) to pay to the heirs of Vicente Domingo the sum of One Thousand Pesos (P1,000.00) as moral damages and One Thousand Pesos (P1,000.00) as attorney's fees; (2) to pay Teofilo Purisima the sum of Six Hundred Fifty Pesos (P650.00); and (3) to pay the costs.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and Villamor, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. 3188 March 12, 1907

THE UNITED STATES, plaintiff-appellee, vs. ALEC KIENE, defendant-appellant.

Hartigan, Marple, Rohde & Gutierrez for appellant. Attorney-General Araneta for appellee.

CARSON, J.:

The defendant was an insurance agent. As such agent there was paid over to him for the account of his employers, the China Mutual Life Insurance Company, the sum of 1,539.20 pesos, Philippine currency, which he failed and refused to turn over to them. For his failure and refusal so to do, he was convicted of the crime ofestafa in the Court of First Instance of the city Manila in sentenced to be imprisoned for one year and six months in Bilibid, and to pay the costs of the trial.

The facts as stated above were fully established at the trial of the case; the accused offered no evidence on his own behalf and rest his appeal substantially upon the alleged failure of the prosecution to establish the existence of a duty or obligation imposed on the defendant to turn over his principal the funds which he is charged with appropriating to his own use.

Counsel for the defendant contends that the trial court erroneously admitted in evidence a certain document purporting to be a contract of agency signed by the defendant. The name of the accused is attached to this document, and one of the witnesses, the district agent of the China Mutual Life Insurance Company, stated that it was the contract of agency it purported to be, but failed to state specifically that the signature attached thereto was the signature of the defendant, though he declared that he knew his signature and had seen him write it on various occasions.

An examination of the record seems to indicate that the failure of the witness to expressly identify the signature of the defendant attached to the document was due to an oversight, but however this may be, it is contented that the execution of the document was not formally established, and the trial court erred in taking into consideration one of its provisions whereby the defendant appears to have expressly obligated himself to deliver to the China Mutual Life Insurance Company the funds collected on its account, without deduction for any purpose whatever.

We do not deem it necessary to review the action of the court in admitting this document in evidence, because we are of opinion that the obligation of the defendant to deliver the funds in question to his employers is determined by the provision of article 1720 of the Civil Code, which is as follows:

Every agent is bound to give an account of his transactions and to pay to the principal all that he may have received by virtue of the agency, even though what has been received is not owed to the principal.

Nothing to the contrary appearing in the record, and the existence of the agency and the collection of the funds on account of the principal having been established, the obligation to deliver these funds to the principal must be held to have been imposed upon the agent by virtue of the contract of agency.

Counsel for the appellant further contented that the court erred in admitting in evidence a certain letter written by the defendant wherein he admitted the collection of certain funds on account of his principal, but we think that the execution of this letter was conclusively established, and that it was properly admitted, being pertinent and material to the issue in the case.

There were other objections to the admission of certain testimony at the trial of the case, but we find no error in the proceedings prejudicial to the real rights of the accused, and it is unnecessary to discuss the assignments of error based on these objections.

The crime of which the accused was convicted is defined and penalized in paragraph 5 of article 535, read together with paragraph 3 of article 534, of the Penal Code, and the penalty prescribed is that of presidio correccional in its minimum and medium degrees. There being no aggravating or extenuating circumstance to be taken into consideration, this penalty should be imposed in its medium degree ,which, in accordance with the provisions of article 82 of the said code, is from one year eight months and twenty-one days to two years eleven months and ten days of presidio correccional. The trial court imposed the penalty of one year and six months of imprisonment in Bilibid, and failed to impose the accessory penalties prescribed by law, and this sentence should therefore be reversed, and is hereby reversed, and instead thereof we impose the penalty of one year eight months and twenty-one days' imprisonment ( presidio correccional), together with the accessory penalties prescribed by law, and the payment to the agents of the China Mutual Life Insurance Company, Limited, of the sum of 1,550.30 pesos, Philippine currency, with subsidiary imprisonment in case of insolvency, and the costs in both instances. After the expiration of ten days let judgment be entered in accordance herewith, and ten days thereafter let the case be remanded to the lower court for proper action. So ordered.

Arellano, C.J., Torres, Mapa, Willard and Tracey, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-12743 August 25, 1917

THE UNITED STATES, plaintiff-appellee, vs. DOMINGO REYES, defendant-appellant.

Antonio Bengson for appellant. Acting Attorney-General for appellee.

MALCOLM, J.:

This is an appeal from a judgment finding Domingo Reyes guilty of estafa and sentencing him to four months and one day of arresto mayor, to the accessory penalties of the law, and to indemnify R. B. Blackman in the sum of P118, with subsidiary imprisonment in case of insolvency, and to pay the costs.

Marked discrepancies in connection with the evidence, particularly that which concerns the figures, are to be noted. Accepting the findings of the trial court, we can summarize the facts as follows:

R. B. Blackman is a surveyor in the Province of Pangasinan. Domingo Reyes, the accused, also lives in that province. Blackman employed Reyes to collect certain amounts due from twelve individuals for Blackman's work in connection with the survey of their lands. The total amount to be collected by Reyes was P860. He only succeeded in collecting P540. He delivered to Blackman P368. He retained the balance, or P172. So far as good. The difficult point concerns the exact terms of the contract. It was merely an oral agreement between Blackman and Reyes. Blackman claims that he agreed to pay Reyes a commission of 10 per cent. Reyes claims that he was to receive a commission of 20 per cent. The trial court, in its decision, states that — "R. B. Blackman, agrimensor, dio al aqui acusado el encargo de cobrar algunas cuentas de honorarios devengados per mediciones practicadas por el como agrimensor, concediendole un 10 por ciento sobre todas las cobranzas." (R. B. Blackman, the surveyor, ordered the said accused to collect certain debts due for surveying and offered a 10 per cent commission on all accounts collected.)

To return to the figures again, it will be noticed that if we accept the statements of Blackman, Reyes was entitled to 10 per cent of P540 (or P530), or P54, making P172 misappropriated, or, if we deduct his commission, P118. On the other hand, if we accept the statements of Reyes, then 20 per cent of the total amount to be collected, P860, is exactly P172, the amount claimed to have been misappropriated.

There are a number of reasons which impel us to the conclusion that the defendant and appellant is guilty as charged. In the first place, in view of the discrepancy in the evidence we are not disposed to set up our judgment as superior to that of the trial court. In the second place, conceding that Reyes was to receive 20 per cent, this, unless some contrary and express stipulation was included, would not entitle him in advance to 20 per cent of the amount actually collected. In the third place, the right to receive a commission of either 10 or 20 per cent did not make to hold out any sum he chose. (Campbell vs. The State [1878], 35 Ohio St., 70.) In the fourth place, under the oral contract Reyes was an agent who was bound to pay to the principal all that he had received by virtue of the agency.

(Civil Code, article 1720; U. S. vs. Kiene [1907], 7 Phil. Rep., 736.) And, lastly, since for all practical purposes, the agency was terminated, the agent was under the obligation to turn over to the principal the amount collected, minus his commission on that amount. (U. S. vs. Schneer [1907], 7 Phil. Rep., 523.)

All the requisites of estafa as punished by article 535, paragraph 5, of the Penal Code, and as construed by the commentators, are here present. The assignment of error relative to the nonproduction by the fiscal of the transcription of the preliminary investigation is not particularly important as secondary evidence was admitted and the substantial rights of the accused were not affected.

The judgment of the trial court being in accord with the facts and the law is hereby affirmed with the costs. So ordered.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-3754 November 15, 1907

ANGELA OJINAGA, plaintiff-appellant, vs. THE ESTATE OF TOMAS R. PEREZ, defendant-appellee.

Haussermann, Cohn and Williams, for appellant. Chicote and Miranda, for appellee.

WILLARD, J.:

The appellant, Doña Angela Ojinaga, as judicial administratrix of Eladio Ojinaga, deceased, presented to the commissioners appointed to hear claims against the estate of Tomas R. Perez, deceased, a demand for 12,053.54 pesos with interest from the 1st of May, 1893. This claim was disallowed by the commissioners and from that disallowance the appellant appealed to the Court of First Instance. That court entered judgment against the appellant and from that judgment she has appealed to this court.

Domingo Perez died in the town of Nueva Caceres in 1882, leaving as surviving heir ten children, six by one marriage and four by another. His estate was administered by one Manuel Achondo until 1889, when the administration was assumed by Tomas R. Perez, one of the heirs.

In April, 1890, a partition of such estate was had among the heirs of Domingo Perez. By this partition the six children of the first marriage received 31,608.90 pesos each, and the four children of the second marriage 17,241.24 pesos each. Two of the children of the first marriage, Adela and Aurora, withdrew their participation. The remaining children, however, four of the first marriage and four of the second — Tomas R. Perez being included among the former — continued Tomas R. Perez in the administration of their respective portions. The community as thus constituted was as follows:

Of the first marriage, Tomas R. Perez, Patricio Perez, Juan Perez and Eladio Ojinaga, the latter being the surviving husband and successor in interest of Isabel Perez, one of the children of the first marriage. These four contributed to the community their respective portions, i. e., 31,608.90 pesos each.

Of the second marriage, Filomena, Jose, Rodolfo, and Margarita Perez, who contributed 17,241.24 pesos each.

Tomas R. Perez continued the administration of this property from April 20, 1890, to May, 1893. In such administration he acted as guardian for all the persons interested except Eladio Ojinaga, and as to him Tomas R. Perez acted as agent. In 1893, when, apparently, Juan and Patricio Perez became of age, Tomas R. Perez filed an account of his administration in the Court of First Instance at Nueva Caceres. In this accounting he showed the net profits of the business for the period stated as 8,084 pesos. The brothers Juan and Patricio refused to accept this statement as correct, claiming that the profits actually drived by Tomas R. Perez from such business during the period named were greater

than shown by him. Eladio Ojinaga accepted the account as rendered and permitted Tomas R. Perez to continue in the administration of his interest. Patricio Perez and his brother Juan persisted in their charge that the account was not correct and continued to demand a new accounting from Tomas R. Perez. The result was that in 1896 or 1897 arbitrators were appointed to examine the accounts of Tomas R. Perez from April 20, 1890, to May 1, 1893. These arbitrators had before them the books of Tomas R. Perez which were examined by Patricio Perez. While this examination was going on, and before it had been completed, Patricio Perez offered to accept 32,000 pesos as a final settlement and determination of the whole question. It seems that Thomas R. Perez was willing to pay this amount as a settlement of the transaction, but Patricio Perez and his associates insisted that in the division of this 32,000 pesos among the heirs Eladio Ojinaga be excluded, and that it be divided among seven heirs instead of being divided among eight heirs.

Patricio Perez knew at this time that Eladio Ojinaga was satisfied with the accounting rendered in 1893, and, testifying at the trial, he said that the reason why they excluded Ojinaga from participation in this amount was because they suspected that there was an agreement between him and Tomas R. Perez and that the idea of Tomas R. Perez was to take his own share out so as to reduce the share of each for his own benefit. This settlement, therefore, was never carried out. Litigation was begun by Patricio and Juan Perez against Tomas R. Perez for an accounting. Other judicial proceedings were commenced by Tomas R. Perez against the heirs, or some of them. A final settlement of all the suits and proceedings then pending and of the entire matter in controversy was made on the 14th of August, 1901, in a public document of that date. By that agreement: "4. Don Tomas R. Perez binds himself to pay Don Patricio Perez the sum of 12,053.54 pesos, as profits, together with the interests agreed upon during the period of his administration from April 20, 1890, to May 1, 1893." He agreed to pay to the other heirs who joined in the agreement, and who were all of the heirs except Eladio Ojinaga, a proportionate amount.lawphil.net

It is claimed by the appellant that this document proves conclusively that the amount of the profits to which Eladio Ojinaga was entitled for the period in question was this sum of 12,053.54 pesos and that he is entitled to that sum with interest thereon from the 1st of May, 1893. It is, however, apparent from the whole document, and from the testimony of Patricio Perez, a witness presented by the appellant at the trial, that this agreement was a compromise settlement and that this sum of 12,000 pesos included interest, costs, and expenses. Patricio Perez testified:

Q. What is the ultimate account on which was calculated your share of 12,053 pesos? — A. I can not tell precisely now from whence that account was taken, but, adding my share to the shares of my brothers and the other four, this was the total sum to be given to us, including the prejudice and damage suffered by us.

x x x x x x x x x

Q. What was to be your share of this 32,000 pesos? — A. I do not know exactly.

Q. More or less? — A. about 6,000 pesos, approximately.

Q. And how was it that you ultimately received 12,000 pesos? — A. Because here in Manila I had incurred further expense and the interest had been accumulating.

The appellant sought to prove at the trial the actual amount of the profits during the period in question by the books kept at the time, but it appears that these had been lost and destroyed. With the exception of these compromise settlements, the only evidence as to the actual profits was that furnished by Patricio Perez. He testified that the reason why he would not accept 8,084 pesos as the amount of the profits was "because the first year he (Tomas R. Perez) rendered the account to the court there was

17,000 pesos profit, and the second year not more than 8,000 pesos profit, and the third year not more than 4,000 pesos profit, but my brother stated to me that on account of some mistakes in the account the profits became reduced by reason of paying off some expenses."

It appears from testimony that Tomas R. Perez filed yearly statements in regard to the profits and that from these yearly statements they would appear to amount to 29,000 pesos, but when he presented his final account for the whole time he showed profits of only 8,084 pesos, claiming that expenses had been paid which had not been included in the yearly accounts. Tomas R. Perez having died in 1903, his explanation of this difference could not be given.

But assuming that the profits for the period above mentioned were 29,000 pesos instead of 8,000, the question is whether Eladio Ojinaga so conducted himself with regard to the transaction that his administratrix has now lost the right to claim a proportionate share of the said 29,000 pesos.

On the 25th of October, 1894, Tomas R. Perez rendered to Eladio Ojinaga an account of his administration from April 1, 1893, to October 25, 1894. In that account are found the following items:

Pesos

Proportionate share of profits during 91, 92 and 93 ..............

1,662.00

6 per cent interest on the above amount ..................................

99.72

On the 29th of October, 1894, Ojinaga stated in writing his consent to this account and left to the administration of Tomas R. Perez all the property which belonged to him coming from the estate. The rendition of this account and the agreement of Ojinaga to the correctness thereof constituted a contract between these parties (Ternate vs.Aniversario, 1 5 Off. Gaz., 462; Enriquez, vs. Enriquez, 2 5 Off. Gaz., 739), a contract which can be set aside only upon the grounds upon which any other contract can be annulled. It is claimed by the appellant that it can be annulled on the ground o fraud committed by Tomas R. Perez in concealing from Ojinaga the truth in regard to the amount of profits for the period in question. No contract can be set aside on the ground of fraud if the person who claims to be defrauded knew all of the facts upon which his claim of fraud is based.

Patricio Perez, who testified as a witness for the appellant, stated that —

. . . In the year 1894 Eladio Ojinaga invited me to approve that account because he had done so, and he advised me to approve it because it would be more just to him, and I did not like to follow his advice.

x x x x x x x x x

Q. Did Eladio Ojinaga know all this trouble between you and Tomas R. Perez, and your brothers? — A. Yes, sir. He had knowledge of that at the time when he invited me to approve the account. I informed him about that. I gave him all of my reasons for not wishing to approve the account and he told me that he on his part approved it.

It is thus seen that in 1894 Ojinaga knew practically everything that is known to-day. Whether this conversation took place before and after the 29th day of October, 1894, is immaterial, because on the 30th of April, 1895, Perez rendered another account to Ojinaga for the time between the 25th of October, 1894, and the 30th of April, 1895. The first item in this account approved by Ojinaga on the

29th of October, 1894. On the 30th of April, 1896, he rendered another account to Ojinaga for the time between 1st day of May, 1895, and the 30th of April, 1896. The first item in this account is the balance of the last preceding account. On the 30th of November, 1896, Ojinaga agreed in writing to the correctness of this account. On the 30th of June, 1897, Tomas R. Perez rendered another account to Ojinaga for the time between the 1st of May, 1896, and the 30th of June, 1897. The first item in this account is the balance of the last preceding account. On September 18, 1897, Ojinaga agreed in writing to the correctness of this account.

The appellant admitted at the trial that when litigation was commenced against Tomas R. Perez, about 1897, Ojinaga complained bitterly of the conduct of Juan and Patricio and accused them of being unkind to their brother. Evidence was introduced at the trial as to the contents of two letters said to be lost, written by Tomas R. Perez to Ojinaga at the time the settlement of 32,000 pesos was under discussion, in which Perez advised Ojinaga to claim his part of that sum. Even then Ojinaga took no action in the matter. He died in Kobe in July, 1898. His will, made in that month, stated that the last time when he settled accounts with Tomas R. Perez was in 1894, but that this settlement was not made effective because there were discovered certain irregularities in the account, irregularities which had been, and are now, the subject to litigation, and he added:

At any rate, it is my desire that whatever profit may accrue from this property, it should be equally divided between my son and my wife.

From what has been said it is seen that this statement is not exactly correct as he kept on approving the accounts of Perez up to the time of his death.

The appellant testified at the trial that she learned the facts in regard to these accounts before her husband's death, and that after his death Juan and Patricio Perez proposed to her to join them in this litigation. This she refused to do, but said that in case they won the suit she would pay her share of the expenses when they paid her proportionate share of what they obtained. No action in court was taken by her until November, 1902.

Under the circumstances above stated this action can not be maintained. Eladio Ojinaga not only agreed to the correctness of this account in 1894, but after he was thoroughly informed in the same year as to all the facts in the case he agreed to other accounts, which necessarily, as he then knew, involved in a repetition of his agreement to the account of 1894. And knowing all the facts in the case, he not only did not join in litigation commenced for the purpose of securing a true statement of the profits but expressly refused to do so and censured the persons who promoted such litigation. The judgment of the court below is affirmed, with the costs of this instance against the appellant. So ordered.

Arellano, C.J., Torres and Tracey, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-38479 November 20, 1933

QUINTIN DE BORJA, judicial administrator of the intestate estate of the deceased Marcelo de Borja,plaintiff-appellant, vs. FRANCISCO DE BORJA, defendant-appellant.

M.H. de Joya and Quintin Paredes for plaintiff-appellant. Jose de Borja for defendant-appellant.

IMPERIAL, J.:

The plaintiff herein, in his capacity as judicial administrator of the estate of the deceased Marcelo de Borja, instituted this action of the Court of First Instance of Rizal, to recover from the defendant the sum of P61,376.56 which, according to the amended complaint, the said defendant owed the aforesaid deceased, for the certain sums of money loaned to and collected by him from other persons with the obligation to render an accounting thereof to the said deceased.

In his amended answer, the defendant interposed various counterclaims for alleged sums of money owed by him by the aforesaid deceased.

After the trial thereof and the presentation of voluminous evidence therein, the trial court reached the conclusion and held that, from his various causes of action, the plaintiff was entitled to recover the sum of P33,218.86 from the defendant, and that, by way of counterclaim, the said defendant in turn was entitled to collect the sum of P39,683 from the plaintiff, and rendered judgment in favor of the defendant in the sum of P6,464.14 with legal interest thereon from the date of the counterclaim, with the costs. Both parties appealed therefrom.lawphil.net

The trial court made a very careful analysis of the oral and documentary evidence presented therein, and from the preponderance thereof, inferred the findings of fact stated in its decision. We are convicted that, from the evidence presented, the liquidation made by the trial court is the nearest approach to its findings of fact, and for this reason we do not feel inclined to alter or modify it.

The plaintiff-appellant's contention that the counterclaims presented by the defendant have already prescribed, is untenable. The counterclaims in question are based on instruments in writing marked Exhibit 1 to 6. The period of prescription thereof is not six (6) years, as claimed, but ten (10) years, in accordance with the provisions of section 43 (1) of the Code of Civil Procedure.

Neither is the plaintiff entitled to the interest claimed by him upon the alleged sums loaned to and collected by the defendant from various persons for his deceased father. In all the aforementioned transactions, the defendant acted in his capacity as attorney-in-fact of his deceased father, and there being no evidence showing that he converted the money entrusted to him to his own use, he is not liable for interest thereon, in accordance with the provisions of article 1742 of the Civil Code.

The defendant-appellant's claim to the effect that he is entitled to collect the rents for the use of the earthen jar factory and the buildings thereof, is, likewise, unfounded. The trial court held that all there existed between the parties was a mere gratuitous commodatum and that the most that the deceased bound himself to do was to pay the taxes on the properties in question. There is nothing in the records of the case to justify reversing the judgment rendered therein.

The judgment appealed from being, in our opinion, in accordance with the law and sufficiently supported by a preponderance of the evidence presented therein, it is hereby affirmed, without special pronouncement as to the costs of this instance. So ordered.

Avanceña, C.J., Malcolm, Villa-Real, and Hull, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-19689 April 4, 1923

PHILIPPINE NATIONAL BANK, plaintiff-appellant, vs. WELCH, FAIRCHILD & CO., INC., defendant-appellee.

Quintin Paredes for appellant. Ross and Lawrence for appellee.

STREET, J.:

By this action the plaintiff, the Philippine National Bank, seeks to recover of the defendant, Welch, Fairchild & Co., Inc., the sum of $125,000, with interest from May 17, 1918, being part of the proceeds of certain insurance effected in the year 1918 upon a ship called the Benito Juarez and collected by the defendant after said ship had been lost at sea. Upon hearing the cause the trial judge absolved the defendant from the complaint and the plaintiff appealed.

In the first half of the year 1918, a corporation , known as La Compañía Naviera, Inc, was organized in Manila under the laws of the Philippine Islands, for the purpose of engaging in the business of marine shipping. Among its shareholders was Welch, Fairchild & Co., another corporation organized under the laws of these Islands and having its principal place of business in the City of Manila. Of the shares of La Compañía Naviera, Welch, Fairchild & Co, subscribed for 325 shares of the par value of P100 each.

As La Compañía Naviera was an entirely new enterprise in the shipping world, it was necessary for it to acquire a proper complement of vessels and adequate equipment and as shipping values in those days were high, the company did not have sufficient ready capital to meet all the requirements. Its officials therefore in May, 1918, applied to the Philippine National Bank for a loan of $125,000. with which to purchase a boat called Benito Juarez, which had been found on the market in the United States. The necessary credit appears to have been extended by the bank in the form of a loan for $125,000, to run for one year from May 17, 1918. Nevertheless, owing to delay in the delivery of the vessel, the money was not then delivered and was not actually advanced by the bank until several months later, as will presently appear.

It appears that Welch, Fairchild & Co. Was not numbered among the original promoters of La Compañía Naviera, but its interests are to a considerable extent involved in the general shipping conditions in the Islands and it looked with a friendly eye upon the new enterprise. Moreover, the mercantile ramifications of Welch, Fairchild, & Co. appear to be extensive; and its friendly offices were freely exerted in behalf of La Compañía Naviera, not only through Welch & Co., the correspondent of the defendant in San Francisco, but also through Mr. Geo. H. Fairchild, the president of Welch, Fairchild & Co. who left Manila for the United States in March of the year 1918 and remained in that country for more than a year. Upon this visit to the United States Mr. Fairchild was kept advised as to certain needs of La Compañía Naviera, and he acted for it in important matters requiring attention in the United States. In particular it was through the efforts of himself and of Judge James Ross, as attorney, that the consent of the proper authorities in Washington, D. C., was obtained for the transfer of the Benito Juarez to Philippine registry.

In August, 1918, the Benito Juarez was on the California coast, and after the approval of its transfer to Philippine registry had been obtained, steps were taken for the delivery of the vessel to the agents of the purchaser in San Francisco at the price of $125,000, as agreed; and it was understood that the delivery of the purchase money would be made by the Anglo-London and Paris National Bank, in San Francisco, as agent of the Philippine National Bank, contemporaneously with the delivery to it of the bill of sale and the policy of insurance of the vessel. It developed, however, that the vessel needed repairs before it could be dispatched on its voyage to the Orient; and it became impracticable to deliver the bill of sale and insurance policy to the bank in San Francisco at the time the money was needed to effect the transfer. Being advised of this circumstance, and fearing that a hitch might thus occur in the negotiations, Welch, Fairchild & Co., in Manila, addressed a letter on August 8, 1918, to the Philippine National Bank, requesting it to cable its correspondent in San Francisco to release the money and make payment for the vessel upon application by Welch & Co., without requiring the delivery of the bill of sale or policy of insurance, "in which event," the letter continued, "the Compañía Naviera will deliver to you here the bill of sale also the insurance policy covering the voyage to Manila." In a letter bearing date of August 10, 1918, also addressed to the Philippine National Bank, La Compañía Naviera, Inc. confirmed this request and authorized the bank to send the cablegram necessary to give it effect.

In response to these communications the Philippine National Bank, on August 14, sent a cablegram to its correspondent in San Francisco authorizing payment of the purchase price of the Benito Juarez, without the production of either bill of sale or insurance policy. Under these circumstances the vessel was delivered and money paid over without the production or delivery of the documents mentioned.

After the repair of the Benito Juarez had been accomplished it was insured by Welch & Co. to the value of $150,000 and was dispatched, in November, 1918, on its voyage to the Philippine Islands. On December 3, 1918, the vessel encountered a storm off the Island of Molokai, in the Hawaiian group, and became a total loss.

When the insurance was taken out to cover the voyage to Manila, no policy was issued by any insurer; but the insurance was placed by Welch & Co. of San Francisco, upon the instructions of Welch, Fairchild & Co., as agents of the Compañía Naviera, and it was taken out in the ordinary course of business to protect the interests of all parties concerned.

As would naturally happen in an insurance of this amount, the risk was distributed among several companies, some in remote centers; and it was many months before Welch & Co., of San Francisco, had collected the full amount due from the insurers. However, as the money came to the hands of Welch & Co., of San Francisco, it was remitted by draft or telegraphic transfer to Welch, Fairchild & Co. in Manila; and in this manner practically the full amount for which the Benito Juarez had been insured was transmitted to Manila by the last days of June, 1919.

As was perhaps but natural under the circumstances, the Philippine National Bank appears to have exhibited no concern about its loan of $125,000 to La Compañía Naviera, or about the proceeds of the insurance on theBenito Juarez, until after the period of credit allowed by the bank on the loan to La Compañía Naviera had expired, that is to say, after May 17, 1919. A short while after this date, an incident occurred upon which the attorneys for the defendant in this case have placed great emphasis, and it is this: In the latter part of the month aforesaid Welch & Co., having collected $13,000 upon account of the insurance on the Benito Juarez, attempted to remit it by telegraphic transfer to Welch, Fairchild & Co. in Manila, but by some mistake or other, the money was remitted to the Philippine National Bank in New York, and it was not until about a month later that authority was received by the Philippine National Bank in Manila to pay to Welch, Fairchild & Co. the sum of $13,000 upon account of said insurance.

When the authority for the transfer of this credit reached the Philippine National Bank, the attention of the bank officials was drawn to the fact that the transfer related to money forming part of the proceeds of the insurance on the Benito Juarez, and they at first determined to intercept the transfer and without the credit from Welch, Fairchild & Co., on the ground that the money belonged to the bank. This claim on the part of the bank was of course based on the letter of Welch, Fairchild & Co. dated August 8, 1918, in which the promise had been held out that, if the bank would advance the purchase money of the Benito Juarez without requiring the concurrent delivery of the policy of insurance, said policy would be delivered later by La Compañía Naviera in Manila. When the determination of the bank's officials to withhold the money was communication to Welch, Fairchild & Co., a strong protest was made, and its attorney came at once to the bank to interview its president. As a result of this interview the president of the bank receded from his position about the matter, and an order was made that the money should be passed to the credit of Welch, Fairchild & Co., as was done on July 23, 1919. A day or two later the bank further credited the account of Welch, Fairchild & Co. with the sum of P119.65, as interest on the money during the time it had been withheld.

In the course of the interview above alluded to, not only did the attorney of Welch, Fairchild & Co, call the attention of the president of the bank to the doubtful propriety of its act in intercepting a remittance of money which had been confined to its agent in San Francisco for transmission to Welch, Fairchild & Co. in Manila, but he also pointed out that Welch, Fairchild & Co. had acted throughout merely in the capacity of agent for La Compañía Naviera, and he therefore insisted that Welch, Fairchild & Co. was not legally bound by the promise made by it in the letter of August 8, 1918, to the effect that the policy of insurance would be delivered to the bank in Manila by La Compañía Naviera; and this contention was urged with such force that the president of the bank — who was not a lawyer — acknowledged himself vanquished, and in the end said that he must have been mistaken in his contention and that the attorney was right.

Shortly after this incident the bank which had permitted La Compañía Naviera to become indebted to it upon inadequate security to the extent of nearly a million pesos began to take steps looking to the betterment of its position in relation with said company. To this end, on August 28, 1919, it went through the barren formality of making demand upon La Compañía Naviera for the delivery of the insurance policies on the Benito Juarez, but was informed by La Compañía Naviera that it had never received any policy of insurance upon the Benito Juarezas the vessel had been insured in San Francisco by Welch, Fairchild & Co. in behalf of La Compañía Naviera. A little later the bank caused La Compañía Naviera to execute pledges to the bank upon three steamers belonging to said company as security for its indebtedness to the bank. Thereafter matters were permitted to drift until it became apparent that La Compañía Naviera was insolvent; and on December 9, 1919, the bank made formal demand upon Welch, Fairchild & Co, for the delivery of the insurance policy for $125,000 on the Benito Juarez, basing its demand on the letter of Welch, Fairchild & Co. of August 8, 1918, already mentioned.

As the bank officials already knew that the insurance had been collected many months previously by Welch, Fairchild & Co., it is evident that the making of demand for delivery of a policy for $125,000 was a mere formula by which the bank intended to plant a contention that the proceeds of the insurance, to the extent of $125,000, belonged to it. To this demand Welch, Fairchild & Co. responded with a negative.

Meanwhile, what had become of the proceeds of the insurance upon the Benito Juarez? That money, as we have already seen, came to the hands of Welch, Fairchild & Co. in Manila and has there rested, having been applied by Welch, Fairchild & Co. in part satisfaction of indebtedness incurred by La Compañía Naviera to it. This disposition of the insurance money was made by Welch, Fairchild & Co. with the tacit approval of La Compañía Naviera, the credits being notified to the latter by the former as the remittances were received to Manila and entered in the accounts of both companies accordingly.

To explain the situation which had thus arisen between the two companies, further reference is here necessary to matters that had taken place during the preceding year. As we have already stated, Welch, Fairchild & Co. had assisted La Compañía Naviera in effecting the purchase and transfer of the Benito Juarez to Philippine registry. In addition to this, Welch, Fairchild & Co. advanced in San Francisco several thousands of pesos necessary for the repair and equipment of that vessel prior to its departure for the Philippine Islands; and the incurring of these expenses explain why insurance was taken out to the extent of $150,000 instead of $125,000, the latter sum being merely the item of cost price. But the friendly offices of Welch, Fairchild & Co. were not limited to the foregoing matters, and said company rendered practically the same service with respect to other vessels which were purchased for La Compañía Naviera, with the result that the advances made by Welch, Fairchild & Co., beginning in the autumn of 1918, steadily mounted in the course of succeeding months and in the end ran up into the hundreds of thousands of pesos. One particular incident, most disastrous to the latter company, consisted in the operation by it, during several months in 1919, of the San Pedro, one of the vessels belonging to La Compañía Naviera, under contract with the latter company.

The result of these expenditures and advances of money by Welch, Fairchild & Co. was that the indebtedness of La Compañía Naviera to Welch, Fairchild & Co. mounted steadily during the year 1919, and said indebtedness was by no means liquidated by the application to it of the insurance money from the Benito Juarez. In this connection we note the following debit balances charged on the books of Welch, Fairchild & Co. against the La Compañía Naviera as the same appear by monthly statements from November 30, 1918, to September 30, 1919; and it will be remembered that these are the balances appearing after credit had been given for the collections of the insurance money. Said debit balances for the months stated are as follows: Upon November 30, 1918, P3,675.71; upon December 31, 1918, P30,627; upon January 25, 1919, P93,961.49; upon February 27, 1919, P145,130.78; upon March 30, 1919, P146,370.66; upon April 29, 1919, P148,542.25; upon May 30, 1919, P153,060.13; upon June 30, 1919, P139,531.27; upon July 31, 1919, P168,724; upon August 31, 1919, P169,932.41; upon September 30, 1919, P185,651.73.

The foregoing statement of facts makes comprehensible the contentions upon which the defense to the present action is based; and these contentions may be stated in the following propositions: First, that, inasmuch as Welch, Fairchild & Co. acted exclusively in the character of agent for La Compañía Naviera in the purchase of the Benito Juarez, no obligation enforcible against it was created by the letter of August 8, 1918, and as a consequence the bank should look exclusively to La Compañía Naviera, as principal, for indemnification for any loss resulting from the failure of said company to deliver the insurance policy, or policies, on the Benito Juarez, or the proceeds thereof, to the bank; secondly, that, even supposing that the letter of August 8, 1918, created any obligation that the defendant was bound to respect, nevertheless the bank waived and abandoned any right that it may have had upon the facts stated; and, thirdly and finally, that, by reason of the delay of the bank and its abandonment of its claim against the defendant, in relation with the prejudice thereby incurred by the defendant, the bank is estopped to assert any right that it may have had in the premises.

We are of the opinion that all of these contentions are untenable and that the plaintiff bank has a clear right of action against the defendant, in nowise affected adversely by any of the considerations suggested. Upon the first point, while it is true that an agent who acts for a revealed principal in the making of a contract does not become personally bound to the other party in the sense that an action can ordinarily be maintained upon such contract directly against the agent (art. 1725, Civ. Code), yet that rule clearly does not control this case; for even conceding that the obligation created by the letter of August 8, 1918, was directly binding only on the principal, and that in law the agent may stand apart therefrom. yet it is manifest upon the simplest principles of jurisprudence that one who has intervened in the making of a contract in the character of agent cannot be permitted to intercept and appropriate the thing which the principal is bound to deliver, and thereby make performance by the principal impossible. The agent in any event must be precluded from doing any positive act that could prevent performance on the part of his principal. This much, ordinary good faith towards the other contracting

party requires. The situation before us in effect is one where, notwithstanding the promise held out jointly by principal and agent in the letters of August 8 and 10, 1918, the two have conspired to make an application of the proceeds of the insurance entirely contrary to the tenor of said letters. This cannot be permitted.

The idea on which we here proceed can perhaps be made more readily apprehensible from another point of view, which is this: By virtue of the promise contained in the letter of August 8, 1918, the bank became the equitable owner of the insurance effected on the Benito Juarez to the extent necessary to indemnify the bank for the money advanced by it, in reliance upon that promise, for the purchase of said vessel; and this right of the bank must be respected by all persons having due notice thereof, and most of all by the defendant which took out the insurance itself in the interest of the parties then concerned, including of course the bank. The defendant therefore cannot now be permitted to ignore the right of the bank and appropriate the insurance to the prejudice of the bank, even though the act be done with the consent of its principal.

As to the argument founded upon the delay of the bank in asserting its right to the insurance money, it is enough to say that mere delay unaccompanied by acts sufficient to create an equitable estoppel does not destroy legal rights, but such delay as occurred here is in part explained by the fact that the loan to La Compañía Naviera did not mature till May 17, 1919, and a demand for the surrender of the proceeds of the insurance before that date would have seemed premature. Besides, it is to be borne in mind that most of the insurance was not in fact collected until in June of 1919. It is true that in the month of March previous about P50,000 of this insurance had been remitted to Manila for Welch, Fairchild & Co. through the plaintiff bank, and the bank, we assume, took notice of the source of the remittance. However, its failure then to assert its claim to the money is not a matter of legitimate criticism, since the loan was not then due. After May 17, 1919, the situation was somewhat different; and as we have already seen, the bank was not slow in asserting its right to the remittance that came through the bank in June to Welch, Fairchild & Co., consisting of $13,000 of the proceeds of this insurance.

This brings us to consider the legal effect of the incident which culminated on July 23, 1919, when the bank abandoned its previous position with regard to this remittance and passed the money to the credit of the defendant, with interest upon the same during the time payment had been withheld. The most, we think, that can fairly be said about that incident is that the bank president admitted himself to be a convert to the proposition advanced by the attorney for the defendant to the effect that as the defendant had merely acted as agent for La Compañía Naviera in the matter, the bank must look exclusively to La Compañía Naviera for the fulfillment of the promise about the insurance money. As a statement of legal doctrine that proposition was, as we have already shown, a mistake; but of course it would have been a matter of indifference if La Compañía Naviera had remained solvent. One consideration that must have operated on the mind of the president of the bank in releasing this money was that it had been remitted in ordinary course of exchange through the bank to the defendant, which was an entirely responsible party; and even though the bank may have had the power to intercept the remittance, the president may have considered that the commercial integrity of the institution in matters of exchange was perhaps worth more than could be gained by an obstinate insistence on its right to this money. There is no evidence whatever that the president of the bank assumed to release the defendant from any obligation which might have been incurred by virtue of the letter of August 8, 1918.

From intimations contained in the testimony of some of the witnesses presented by the defendant it might be inferred that at some time or another an understanding had been reached between the bank and the defendant company by which it was agreed that the defendant should make advances of money to La Compañía Naviera and that it might look to the proceeds of the insurance on the Benito Juarez to reimburse itself for those outlays. No such agreement with the bank or any official of the bank is alleged in the defendant's answer; and as one reads the testimony submitted by the defendant this hearsay suggestion continually flits away, until it becomes apparent that no such agreement was

made. That there was some such understanding between the defendant and La Compañía Naviera is highly probable, but to that understanding the bank clearly was not a party.

It is insisted, however, that the attitude of the bank has been such that the defendant has been misled to its prejudice, in that only did it give large credit to La Compañía Naviera for sums to be recouped from this insurance money but that in reliance upon its right to that money it refrained from taking the steps that it might have taken to save itself from loss; and in this connection it is suggested that but for the incident in July, 1919, when the bank waived its claim to the $13,000 remitted through it to Welch, Fairchild & Co., the defendant would have sought and would have been able to get additional security in the form of mortgages or pledges of one or more vessels belonging to La Compañía Naviera.

The proof in our opinion shows little or no tangible basis for these contentions; and so far as we can see not one dollar was ever advanced by the defendant to La Compañía Naviera upon the faith of any request, promise, or representation of the bank in that behalf extended; and it should be noted that the large losses incurred by the defendant for advances to that concern after July 23, 1919, were mostly incurred in the desperate effort to retrieve its position by operating the San Pedro. The suggestion that, but for the misleading attitude of the bank, the defendant would have been able to obtain additional security loses much of its force when it is considered that upon December 31, 1921, the defendant's book still showed unsecured indebtedness against La Compañía Naviera to the amount of nearly P50,000. The idea that, but for the attitude assumed by the bank, the defendant would have materially bettered its position, is a speculation too remote to affect the issue of this action.

In the light of what has been said, it becomes necessary to reverse, as we hereby do reverse, the judgment appealed from; and judgment will be entered in favor of the plaintiff to recover of the defendant the sum of P250,000, with lawful interest from May 31, 1921, the date of the filling of the complaint. No special pronouncement will be made as to costs. So ordered.

Araullo, C. J., Avanceña, Villamor, Ostrand, and Romualdez, JJ., concur.

Mr. Justice Johns voted for reversal but he was absent at the time of the promulgation of the decision, and his signature therefore does not appear signed to the opinion of the court.

(Sgd.) MANUEL ARAULLO Chief Justice

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-19001 November 11, 1922

HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant, vs. DOMINGO RODRIGUEZ, defendant-appellee.

Hartford Beaumont for appellant. Ross and Lawrence and Antonio T. Carrascoso, Jr., for appellee.

STATEMENT

The plaintiff is a domestic corporation with its principal office in the city of Manila and engaged in the electrical business, and among other things in the sale of what is known as the "Matthews" electric plant, and the defendant is a resident of Talisay, Occidental Negros, and A. C. Montelibano was a resident of Iloilo.

Having this information, Montelibano approached plaintiff at its Manila office, claiming that he was from Iloilo and lived with Governor Yulo; that he could find purchaser for the "Matthews" plant, and was told by the plaintiff that for any plant that he could sell or any customer that he could find he would be paid a commission of 10 per cent for his services, if the sale was consummated. Among other persons. Montelibano interviews the defendant, and, through his efforts, one of the "Matthews" plants was sold by the plaintiff to the defendant, and was shipped from Manila to Iloilo, and later installed on defendant's premises after which, without the knowledge of the plaintiff, the defendant paid the purchase price to Montelibano. As a result, plaintiff commenced this action against the defendant, alleging that about August 18, 1920, it sold and delivered to the defendant the electric plant at the agreed price of P2,513.55 no part of which has been paid, the demands judgment for the amount with interest from October 20, 1920.

For answer, the defendant admits the corporation of the plaintiff, and denies all other material allegations of the complaint, and, as an affirmative defense, alleges "that on or about the 18th of August, 1920, the plaintiff sold and delivered to the defendant a certain electric plant and that the defendant paid the plaintiff the value of said electric plant, to wit: P2,513.55."

Upon such issues the testimony was taken, and the lower court rendered judgment for the defendant, from which the plaintiff appeals, claiming that the court erred in holding that the payment to A. C. Montelibano would discharge the debt of defendant, and in holding that the bill was given to Montelibano for collection purposes, and that the plaintiff had held out Montelibano to the defendant as an agent authorized to collect, and in rendering judgment for the defendant, and in not rendering judgment for the plaintiff.

JOHNS, J.:

The testimony is conclusive that the defendant paid the amount of plaintiff's claim to Montelibano, and that no part of the money was ever paid to the plaintiff. The defendant, having alleged that the plaintiff sold and delivered the plant to him, and that he paid the plaintiff the purchase price, it devolved upon the defendant to prove the payment to the plaintiff by a preponderance of the evidence.

It appears from the testimony of H. E. Keeler that he was president of the plaintiff and that the plant in question was shipped from Manila to Iloilo and consigned to the plaintiff itself, and that at the time of the shipment the plaintiff sent Juan Cenar, one of its employees, with the shipment, for the purpose of installing the plant on defendant's premises. That plaintiff gave Cenar a statement of the account, including some extras and the expenses of the mechanic, making a total of P2,563,95. That Montelibano had no authority from the plaintiff to receive or receipt for money. That in truth and in fact his services were limited and confined to the finding of purchasers for the "Matthews" plant to whom the plaintiff would later make and consummate the sale. That Montelibano was not an electrician, could not install the plant and did not know anything about its mechanism.

Cenar, as a witness for the plaintiff, testified that he went with shipment of the plant from Manila to Iloilo, for the purpose of installing, testing it, and to see that everything was satisfactory. That he was there about nine days, and that he installed the plant, and that it was tested and approved by the defendant. He also says that he personally took with him the statement of account of the plaintiff against the defendant, and that after he was there a few days, the defendant asked to see the statement, and that he gave it to him, and the defendant said, "he was going to keep it." I said that was all right "if you want." "I made no effort at all to collect the amount from him because Mr. Rodriguez told me he was going to pay for the plant here in Manila." That after the plant was installed and approved, he delivered it to the defendant and returned to Manila.

The only testimony on the part of the defendant is that of himself in the form of a deposition in which he says that Montelibano sold and delivered the plant to him, and "was the one who ordered the installation of that electrical plant," and he introduced in evidence as part of his deposition a statement and receipt which Montelibano signed to whom he paid the money. When asked why he paid the money to Montelibano, the witness says:

Because he was the one who sold, delivered, and installed the electrical plant, and he presented to me the account, Exhibits A and A-I, and he assured me that he was duly authorized to collect the value of the electrical plant.

The receipt offered in evidence is headed:

STATEMENT Folio No. 2494

Mr. DOMINGO RODRIGUEZ, Iloilo, Iloilo, P.I.

In account with HARRY E. KEELER ELECTRIC COMPANY, INC. 221 Calle Echaque, Quiapo, Manila, P.I. MANILA, P.I., August 18, 1920.

The answer alleges and the receipt shows upon its face that the plaintiff sold the plant to the defendant, and that he bought it from the plaintiff. The receipt is signed as follows:

Received payment HARRY E. KEELER ELECTRIC CO. Inc.,

Recibi (Sgd.) A. C. MONTELIBANO.

There is nothing on the face of this receipt to show that Montelibano was the agent of, or that he was acting for, the plaintiff. It is his own personal receipt and his own personal signature. Outside of the fact that Montelibano received the money and signed this receipt, there is no evidence that he had any authority, real or apparent, to receive or receipt for the money. Neither is there any evidence that the plaintiff ever delivered the statement to Montelibano, or authorized anyone to deliver it to him, and it is very apparent that the statement in question is the one which was delivered by the plaintiff to Cenar, and is the one which Cenar delivered to the defendant at the request of the defendant.

The evidence of the defendant that Montelibano was the one who sold him the plant is in direct conflict with his own pleadings and the receipt statement which he offered in evidence. This statement also shows upon its face that P81.60 of the bill is for:

To Passage round trip, 1st Class @ P40.80 a trip ........................................... P81.60.

Plus Labor @ P5.00 per day — Machine's transportation ................. 9.85.

This claim must be for the expenses of Cenar in going to Iloilo from Manila and return, to install the plant, and is strong evidence that it was Cenar and not Montelibano who installed the plant. If Montelibano installed the plant, as defendant claims, there would not have been any necessity for Cenar to make this trip at the expense of the defendant. After Cenar's return to Manila, the plaintiff wrote a letter to the defendant requesting the payment of its account, in answer to which the defendant on September 24 sent the following telegram:

Electric plant accessories and installation are paid to Montelibano about three weeks Keeler Company did not present bill.

This is in direct conflict with the receipted statement, which the defendant offered in evidence, signed by Montelibano. That shows upon its face that it was an itemized statement of the account of plaintiff with the defendant. Again, it will be noted that the receipt which Montelibano signed is not dated, and it does not show when the money was paid: Speaking of Montelibano, the defendant also testified: "and he assured me that he was duly authorized to collect the value of the electrical plant." This shows upon its face that the question of Montelibano's authority to receive the money must have been discussed between them, and that, in making the payment, defendant relied upon Montelibano's own statements and representation, as to his authority, to receipt for the money.

In the final analysis, the plant was sold by the plaintiff to the defendant, and was consigned by the plaintiff to the plaintiff at Iloilo where it was installed by Cenar, acting for, and representing, the plaintiff, whose expense for the trip is included in, and made a part of, the bill which was receipted by Montelibano.

There is no evidence that the plaintiff ever delivered any statements to Montelibano, or that he was authorized to receive or receipt for the money, and defendant's own telegram shows that the plaintiff "did not present bill" to defendant. He now claims that at the very time this telegram was sent, he had the receipt of Montelibano for the money upon the identical statement of account which it is admitted the plaintiff did render to the defendant.

Article 1162 of the Civil Code provides:

Payment must be made to the persons in whose favor the obligation is constituted, or to another authorized to receive it in his name.

And article 1727 provides:

The principal shall be liable as to matters with respect to which the agent has exceeded his authority only when he ratifies the same expressly or by implication.

In the case of Ormachea Tin-Conco vs. Trillana (13 Phil., 194), this court held:

The repayment of a debt must be made to the person in whose favor the obligation is constituted, or to another expressly authorized to receive the payment in his name.

Mechem on Agency, volume I, section 743, says:

In approaching the consideration of the inquiry whether an assumed authority exist in a given case, there are certain fundamental principles which must not be overlooked. Among these are, as has been seen, (1) that the law indulges in no bare presumptions that an agency exists: it must be proved or presumed from facts; (2) that the agent cannot establish his own authority, either by his representations or by assuming to exercise it; (3) that an authority cannot be established by mere rumor or general reputation; (4)that even a general authority is not an unlimited one; and (5) that every authority must find its ultimate source in some act or omission of the principal. An assumption of authority to act as agent for another of itself challenges inquiry. Like a railroad crossing, it should be in itself a sign of danger and suggest the duty to "stop, look, and listen." It is therefore declared to be a fundamental rule, never to be lost sight of and not easily to be overestimated, that persons dealing with an assumed agent, whether the assumed agency be a general or special one, are bound at their peril, if they would hold the principal, to ascertain not only the fact of the agency but the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it.

. . . It is, moreover, in any case entirely within the power of the person dealing with the agent to satisfy himself that the agent has the authority he assumes to exercise, or to decline to enter into relations with him. (Melchem on Agency, vol. I, sec. 746.)

The person dealing with the agent must also act with ordinary prudence and reasonable diligence. Obviously, if he knows or has good reason to believe that the agent is exceeding his authority, he cannot claim protection. So if the suggestions of probable limitations be of such a clear and reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he seeks to exercise is of such an unusual or improbable character, as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real state of the case, but should either refuse to deal with the agent at all, or should ascertain from the principal the true condition of affairs. (Mechem on Agency, vol. I, sec 752.)

And not only must the person dealing with the agent ascertain the existence of the conditions, but he must also, as in other cases, be able to trace the source of his reliance to some word or act of the principal himself if the latter is to be held responsible. As has often been pointed out, the agent alone cannot enlarge or extend his authority by his own acts or statements, nor can he alone remove limitations or waive conditions imposed by his principal. To charge the principal in such a case, the principal's consent or concurrence must be shown. (Mechem on Agency, vol. I, section 757.)

This was a single transaction between the plaintiff and the defendant.lawph!l.net

Applying the above rules, the testimony is conclusive that the plaintiff never authorized Montelibano to receive or receipt for money in its behalf, and that the defendant had no right to assume by any act or deed of the plaintiff that Montelibano was authorized to receive the money, and that the defendant made the payment at his own risk and on the sole representations of Montelibano that he was authorized to receipt for the money.

The judgment of the lower court is reversed, and one will be entered here in favor of the plaintiff and against the defendant for the sum of P2,513.55 with interest at the legal rate from January 10, 1921, with costs in favor of the appellant. So ordered.

Araullo, C. J., Johnson, Street, Malcolm, Avanceña, Villamor, Ostrand, and Romualdez, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-29640 June 10, 1971

GUILLERMO AUSTRIA, petitioner, vs. THE COURT OF APPEALS (Second Division), PACIFICO ABAD and MARIA G. ABAD, respondents.

Antonio Enrile Inton for petitioner.

Jose A. Buendia for respondents.

REYES, J.B.L., J.:

Guillermo Austria petitions for the review of the decision rendered by the Court of Appeal (in CA-G.R. No. 33572-R), on the sole issue of whether in a contract of agency (consignment of goods for sale) it is necessary that there be prior conviction for robbery before the loss of the article shall exempt the consignee from liability for such loss.

In a receipt dated 30 January 1961, Maria G. Abad acknowledged having received from Guillermo Austria one (1) pendant with diamonds valued at P4,500.00, to be sold on commission basis or to be returned on demand. On 1 February 1961, however, while walking home to her residence in Mandaluyong, Rizal, Abad was said to have been accosted by two men, one of whom hit her on the face, while the other snatched her purse containing jewelry and cash, and ran away. Among the pieces of jewelry allegedly taken by the robbers was the consigned pendant. The incident became the subject of a criminal case filed in the Court of First Instance of Rizal against certain persons (Criminal Case No. 10649, People vs. Rene Garcia, et al.).

As Abad failed to return the jewelry or pay for its value notwithstanding demands, Austria brought in the Court of First Instance of Manila an action against her and her husband for recovery of the pendant or of its value, and damages. Answering the allegations of the complaint, defendants spouses set up the defense that the alleged robbery had extinguished their obligation.

After due hearing, the trial court rendered judgment for the plaintiff, and ordered defendants spouses, jointly and severally, to pay to the former the sum of P4,500.00, with legal interest thereon, plus the amount of P450.00 as reasonable attorneys' fees, and the costs. It was held that defendants failed to prove the fact of robbery, or, if indeed it was committed, that defendant Maria Abad was guilty of negligence when she went home without any companion, although it was already getting dark and she was carrying a large amount of cash and valuables on the day in question, and such negligence did not free her from liability for damages for the loss of the jewelry.

Not satisfied with his decision, the defendants went to the Court of Appeals, and there secured a reversal of the judgment. The appellate court overruling the finding of the trial court on the lack of credibility of the two defense witnesses who testified on the occurrence of the robbery, and holding that the facts of robbery and defendant Maria Abad's possesion of the pendant on that unfortunate day have been duly published, declared respondents not responsible for the loss of the jewelry on account of a fortuitous event, and relieved them from liability for damages to the owner. Plaintiff thereupon instituted the present proceeding.

It is now contended by herein petitioner that the Court of Appeals erred in finding that there was robbery in the case, although nobody has been found guilty of the supposed crime. It is petitioner's theory that for robbery to fall under the category of a fortuitous event and relieve the obligor from his obligation under a contract, pursuant to Article 1174 of the new Civil Code, there ought to be prior finding on the guilt of the persons responsible therefor. In short, that the occurrence of the robbery should be proved by a final judgment of conviction in the criminal case. To adopt a different view, petitioner argues, would be to encourage persons accountable for goods or properties received in trust or consignment to connive with others, who would be willing to be accused in court for the robbery, in order to be absolved from civil liability for the loss or disappearance of the entrusted articles.

We find no merit in the contention of petitioner.

It is recognized in this jurisdiction that to constitute a caso fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be independent of the human will (or rather, of the debtor's or obligor's); (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor must be free of participation in or aggravation of the injury to the creditor. 1 A fortuitous event, therefore, can be produced by nature, e.g., earthquakes, storms, floods, etc., or by the act of man, such as war, attack by bandits, robbery, 2 etc., provided that the event has all the characteristics enumerated above.

It is not here disputed that if respondent Maria Abad were indeed the victim of robbery, and if it were really true that the pendant, which she was obliged either to sell on commission or to return to petitioner, were taken during the robbery, then the occurrence of that fortuitous event would have extinguished her liability. The point at issue in this proceeding is how the fact of robbery is to be established in order that a person may avail of the exempting provision of Article 1174 of the new Civil Code, which reads as follows:

ART. 1174. Except in cases expressly specified by law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.

It may be noted the reform that the emphasis of the provision is on the events, not on the agents or factors responsible for them. To avail of the exemption granted in the law, it is not necessary that the persons responsible for the occurrence should be found or punished; it would only be sufficient to established that the enforceable event, the robbery in this case did take place without any concurrent fault on the debtor's part, and this can be done by preponderant evidence. To require in the present action for recovery the prior conviction of the culprits in the criminal case, in order to establish the robbery as a fact, would be to demand proof beyond reasonable doubt to prove a fact in a civil case.

It is undeniable that in order to completely exonerate the debtor for reason of a fortutious event, such debtor must, in addition to the cams itself, be free of any concurrent or contributory fault or negligence. 3 This is apparent from Article 1170 of the Civil Code of the Philippines, providing that:

ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.

It is clear that under the circumstances prevailing at present in the City of Manila and its suburbs, with their high incidence of crimes against persons and property that renders travel after nightfall a matter to be sedulously avoided without suitable precaution and protection, the conduct of respondent Maria G. Abad, in returning alone to her house in the evening, carrying jewelry of considerable value would be negligent per se and would not exempt her from responsibility in the case of a robbery. We are not persuaded, however, that the same rule should obtain ten years previously, in 1961, when the robbery in question did take place, for at that time criminality had not by far reached the levels attained in the present day.

There is likewise no merit in petitioner's argument that to allow the fact of robbery to be recognized in the civil case before conviction is secured in the criminal action, would prejudice the latter case, or would result in inconsistency should the accused obtain an acquittal or should the criminal case be dismissed. It must be realized that a court finding that a robbery has happened would not necessarily mean that those accused in the criminal action should be found guilty of the crime; nor would a ruling that those actually accused did not commit the robbery be inconsistent with a finding that a robbery did take place. The evidence to establish these facts would not necessarily be the same.

WHEREFORE, finding no error in the decision of the Court of Appeals under review, the petition in this case is hereby dismissed with costs against the petitioner.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Castro, J., took no part.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-22604 February 3, 1925

GUADALUPE GONZALEZ and LUIS GOMEZ, plaintiffs-appellants, vs. E.J. HABERER, defendant-appellee.

Feria and La O for appellants. Paredes, Buencamino and Yulo for appellee.

OSTRAND, J.:

This action is brought to recover the sum of P34,260 alleged to be due the plaintiffs from the defendant upon a written agreement for the sale of a tract of land situated in the Province of Nueva Ecija. The plaintiffs also ask for damages in the sum of P10,000 for the alleged failure of the defendant to comply with his part of the agreement.

The defendant in his answer admits that of the purchase price stated in the agreement a balance of P31,000 remains unpaid, but by way of special defense, cross-complaint and counter-claim alleges that at the time of entering into the contract the plaintiffs through false representations lead him to believe that they were in possession of the land and that the title to the greater portion thereof was not in dispute; that on seeking to obtain possession he found that practically the entire area of the land was occupied by adverse claimants and the title thereto disputed; that he consequently has been unable to obtain possession of the land; and that the plaintiffs have made no efforts to prosecute the proceedings for the registration of the land. He therefore asks that the contract be rescinded; that the plaintiffs be ordered to return to him the P30,000 already paid by him to them and to pay P25,000 as damages for breach of the contract.

The court below dismissed the plaintiffs' complaint, declared the contract rescinded and void and gave the defendant judgment upon his counterclaim for the sum of P30,000, with interest from the date upon which the judgment becomes final. The case is now before this court upon appeal by the plaintiffs from that judgment.

The contract in question reads as follows:

Know all men by these presents:

That I, Guadalupe Gonzalez y Morales de Gomez, married with Luis Gomez, of age, and resident of the municipality of Bautista, Province of Pangasinan, Philippine Islands, do hereby state:

1. That I am the absolute and exclusive owner of a parcel of land situated in the barrio of Partida, municipality of Guimba, Nueva Ecija, described as follows:

Bounded on the north by the land of Don Marcelino Santos; on the east, by the land of Doña Cristina Gonzalez; on the south by the Binituan River; and on the west, by the land of Doña Ramona Gonzalez; containing an area of 488 hectares approximately.

2. That an application was filed for the registration of the above described land in the registry of property of Nueva Ecija, which application is still pending in the Court of First Instance of Nueva Ecija.

3. That in consideration of the sum of P125 per hectare I do hereby agree and bind myself to sell and transfer by way of real and absolute sale the land above described to Mr. E.J. Habere, binding myself to execute the deed of sale immediately after the decree of the court adjudicating said land in my favor is registered in the registry of property of the Province of Nueva Ecija. The condition of this obligation to sell are as follows:

"1. That Mr. E.J. Haberer has at this moment paid me the sum of P30,000 on account of the price of the aforesaid land.

"2. That said Mr. E.J. Haberer agrees and binds himself to pay within six months from the date of the execution of this document the unpaid balance of the purchase price.

"3. That said Mr. E.J. Haberer shall have the right to take possession of the aforesaid land immediately after the execution of this document together with all the improvements now existing on the same land, such as palay plantation and others.

"4. That said Mr. E.J. agrees and binds himself to pay the expenses to be incurred from this date in the registration of the aforesaid land up to the filing of the proper decree in the office of the register of deeds of the Province of Nueva Ecija.

"5. That in the event that the court should hold that I am not the owner of all or any part of the aforesaid land, I agree and bind myself to return without interest all such amounts of money as I have received or may receive from Mr. E.J. Haberer as the purchase price of said land, but, in the event that the court should adjudicate a part of the aforesaid land to me, then I agree and bind myself to sell said portion adjudicated to me, returning all the amounts received from Mr. E.J. Haberer in excess of the price of said portion at the rate of P125 per hectare.

"6. The Mr. E.J. Haberer does hereby waive any interest or indemnity upon the amount that I am to return to him and which I have receive from Mr. E.J. Haberer as the purchase price of the aforesaid land."

I, E.J. Haberer, married, of age, and resident of the municipality of Talavera, Nueva Ecija, do hereby state that, having known the contents of this document, I accept the same with all the stipulations and conditions thereof.

I, Luis Gomez, married, of age, and resident of the municipality of Bautista, Province of Pangasinan, do hereby grant my wife, Dña. Guadalupe Gonzalez y Morales de Gomez, the due marital license to execute this document and make effective the definite sale of the land as above stipulated, she being empowered to execute the deed of sale and other necessary documents in order that the full ownership over the aforesaid land may be transferred to Mr. E.J. Haberer, as stipulated in this document.

In testimony whereof, we hereunto set our hands at Manila, this 7th day of July, 1920.

(Sgd.) GUADALUPE G. DE GOMEZ E.J. HABERER

LUIS GOMEZ

Signed in the presence of the witnesses:

(Sgd.) EMIGDIO DOMINGO L.G. ALVAREZ

(Acknowledged before notary.)

It is conceded by the plaintiffs that the defendant never obtained actual or physical possession of the land, but it is argued that under the contract quoted the plaintiffs were under no obligation to place him in possession. This contention cannot be sustained. Cause 3 of paragraph 3 of the contract gave the defendant the right to take possession of the land immediately upon the execution of the contract and necessarily created the obligation on the part of the plaintiffs to make good the right thus granted; it was one of the essential conditions of the agreement and the failure of the plaintiffs to comply with this condition, without fault on the part of the defendant, is in itself sufficient ground for the rescission, even in the absence of any misrepresentation on their part. (Civil Code, art. 1124 ; Pabalan vs. Velez, 22 Phil., 29.)

It is therefore unnecessary to discuss the question whether the defendant was induced to enter into the agreement through misrepresentation made by the plaintiff Gomez. We may say, however, that the evidence leaves no doubt that some misrepresentations were made and that but for such misrepresentations the defendant would not have been likely to enter into the agreement in the form it appeared. As to the contention that the plaintiff Gonzalez cannot be charged with the misrepresentations of Gomez, it is sufficient to say that the latter in negotiating for the sale of the land acted as the agent and representative of the other plaintiff, his wife; having accepted the benefit of the representations of her agent she cannot, of course, escape liability for them. (Haskellvs. Starbird, 152 Mass., 117; 23 A.S.R., 809.)

The contention of the appellants that the symbolic delivery effected by the execution and delivery of the agreement was a sufficient delivery of the possession of the land, is also without merit. The possession referred to in the contract is evidently physical; if it were otherwise it would not have been necessary to mention it in the contract. (See Cruzado vs. Bustos and Escaler, 34 Phil., 17.)

The judgment appealed from is in accordance with the law, is fully sustained by the evidence, and is therefore affirmed, with the costs against the appellants. So ordered.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-20726 December 20, 1923

ALBALADEJO Y CIA., S. en C., plaintiff-appellant, vs. The PHILIPPINE REFINING CO., as successor to The Visayan Refining Co., defendant-appellant.

Eduardo Gutierrez Repide and Felix Socias for plaintiff. Manly, Goddard and Lockwood for defendant-appellant. Fisher, DeWitt, Perkins and Brady of counsel.

STREET, J.:

This action was instituted in the Court of First Instance of the Province of Albay by Albaladejo y Cia., S. en C., to recover a sum of money from the Philippine Refining Co., as successor to the Visayan Refining Co., two causes of action being stated in the complaint. Upon hearing the cause the trial judge absolved the defendant from the first cause of action but gave judgment for the plaintiff to recover the sum of P49,626.68, with costs, upon the second cause of action. From this judgment the plaintiff appealed with respect to the action taken upon the first cause of action, and the defendant appealed with respect to the action taken upon the second cause of action. It results that, by the appeal of the two parties, the decision of the lower court is here under review as regards the action taken upon both grounds of action set forth in the complaint.

It appears that Albaladejo y Cia. is a limited partnership, organized in conformity with the laws of these Islands, and having its principal place of business at Legaspi, in the Province of Albay; and during the transactions which gave origin to this litigation said firm was engaged in the buying and selling of the products of the country, especially copra, and in the conduct of a general mercantile business in Legaspi and in other places where it maintained agencies, or sub-agencies, for the prosecution of its commercial enterprises.

The Visayan Refining Co. is a corporation organized under the laws of the Philippine Islands; and prior to July 9, 1920, it was engaged in operating its extensive plant at Opon, Cebu, for the manufacture of coconut oil.

On August 28, 1918, the plaintiff made a contract with the Visayan Refining Co., the material parts of which are as follows:

Memorandum of Agreement Re Purchase of Copra. — This memorandum of agreement, made and entered into by and between Albaladejo y Compania, S. en C., of Legaspi, Province of Albay, Philippine Islands, party of the first part, and the Visayan Refining Company, Inc., of Opon, Province of Cebu, Philippine Islands, party of the second part,

Witnesseth That. — Whereas, the party of the first part is engaged in the purchase of copra in the Province of Albay; and Whereas, the party of the second part is engaged in the business of the manufacture of coconut oil, or which purpose it must continually purchase large quantities of copra; Now, Therefore, in consideration of the premises and covenants hereinafter set forth, the said parties have agreed and do hereby contract and agree as follows, to wit:

1. The party of the first part agrees and binds itself to sell to the party of the second part, and the party of the second part agrees and binds itself to buy from the party of the first part, for a period of one (1) year from the date of these presents, all the copra purchased by the party of the first part in Province of Albay.

2. The party of the second part agrees to pay the party of the first part for the said copra the market price thereof in Cebu at date (of) purchase, deducting, however, from such price the cost of transportation by sea to the factory of the party of second part at Opon, Cebu, the amount deducted to be ascertained from the rates established, from time to time, by the public utility commission, or such entity as shall succeed to its functions, and also a further deduction for the shrinkage of the copra from the time of its delivery to the party of the second part to its arrival at Opon, Cebu, plus one-half of a real per picul in the event the copra is delivered to boats which will unload it on the pier of the party of the second part at Opon, Cebu, plus one real per picul in the event that the party of the first part shall employ its own capital exclusively in its purchase.

3. During the continuance of this contract the party of the second part will not appoint any other agent for the purchase of copra in Legaspi, nor buy copra from any vendor in Legaspi.

4. The party of the second part will, so far as practicable, keep the party of the first part advised of the prevailing prices paid for copra in the Cebu market.

5. The party of the second part will provide transportation by sea to Opon, Cebu, for the copra delivered to it by the party of the first part, but the party of the first part must deliver such copra to the party of the second part free on board the boats of the latter's ships or on the pier alongside the latter's ships, as the case may be.

Pursuant to this agreement the plaintiff, during the year therein contemplated, bought copra extensively for the Visayan Refining Co. At the end of said year both parties found themselves satisfied with the existing arrangement, and they therefore continued by tacit consent to govern their future relations by the same agreement. In this situation affairs remained until July 9, 1920, when the Visayan Refining Co. closed down its factory at Opon and withdrew from the copra market.

When the contract above referred to was originally made, Albaladejo y Cia. apparently had only one commercial establishment, i.e., that at Legaspi; but the large requirements of the Visayan Refining Co. for copra appeared so far to justify the extension of the plaintiff's business that during the course of the next two or three years it established some twenty agencies, or subagencies, in various ports and places of the Province of Albay and neighboring provinces.

After the Visayan Refining Co. had ceased to buy copra, as above stated, of which fact the plaintiff was duly notified, the supplies of copra already purchased by the plaintiff were gradually shipped out and accepted by the Visayan Refining Co., and in the course of the next eight or ten months the accounts between the two parties were liquidated. The last account rendered by the Visayan Refining Co. to the plaintiff was for the month of April, 1921, and it showed a balance of P288 in favor of the defendant. Under date of June 25, 1921, the plaintiff company addressed a letter from Legaspi to the

Philippine Refining Co. (which had now succeeded to the rights and liabilities of the Visayan Refining Co.), expressing its approval of said account. In this letter no dissatisfaction was expressed by the plaintiff as to the state of affairs between the parties; but about six weeks thereafter the present action was begun.

Upon reference to paragraph five of the contract reproduced above it will be seen that the Visayan Refining Co. obligated itself to provide transportation by sea to Opon, Cebu, for the copra which should be delivered to it by the plaintiff; and the first cause of action set forth in the complaint is planted upon the alleged negligent failure of the Visayan Refining Co. to provide opportune transportation for the copra collected by the plaintiff and deposited for shipment at various places. In this connection we reproduce the following allegations from the complaint:

6. That, from the month of September, 1918, until the month of June, 1920, the plaintiff opportunely advised the Visayan of the stocks that the former had for shipment, and, from time to time, requested the Visayan to send vessels to take up said stocks; but that the Visayan culpably and negligently allowed a great number of days to elapse before sending the boats for the transportation of the copra to Opon, Cebu, and that due to the fault and negligence of the Visayan, the stocks of copra prepared for shipment by the plaintiff had to remain an unnecessary length of time in warehouses and could not be delivered to the Visayan, nor could they be transmitted to this latter because of the lack of boats, and that for this reason the copra gathered by the plaintiff and prepared for delivery to the Visayan suffered the diminishment of weight herein below specified, through shrinkage or excessive drying, and, in consequence thereof, an important diminishment in its value.

x x x x x x x x x

8. That the diminishment in weight suffered as shrinkage through excessive drying by all the lots of copra sold by the plaintiff to the Visayan, due to the fault and negligence of the Visayan in the sending of boats to take up said copra, represents a total of 9,695 piculs and 56 cates, the just and reasonable value of which, at the rates fixed by the purchaser as the price in its liquidation, is a total of two hundred and one thousand, five hundred and ninety-nine pesos and fifty-three centavos (P201,599.53), Philippine currency, in which amount the plaintiff has been damaged and injured by the negligent and culpable acts and omissions of the Visayan, as herein above stated and alleged.

In the course of the appealed decision the trial judge makes a careful examination of the proof relative to the movements of the fleet of boats maintained by the Visayan Refining Co. for the purpose of collecting copra from the various ports where it was gathered for said company, as well as of the movements of other boats chartered or hired by said company for the same purpose; and upon consideration of all the facts revealed in evidence, his Honor found that the Visayan Refining Co. had used reasonable promptitude in its efforts to get out the copra from the places where it had been deposited for shipment, notwithstanding occasional irregularities due at times to the condition of the weather as related to transportation by sea and at other times to the inability of the Visayan Refining Co. to dispatch boats to the more remote ports. This finding of the trial judge, that no negligence of the kind alleged can properly be imputed to the Visayan Refining Co., is in our opinion supported by the proof.

Upon the point of the loss of weight of the copra by shrinkage, the trial judge found that this is a product which necessarily undergoes considerable shrinkage in the process of drying, and intelligent witnesses who are conversant with the matter testified at the trial that shrinkage of cobra varies from twenty to thirty per centum of the original gross weight. It is agreed that the shrinkage shown in all of the copra which the plaintiff delivered to the Visayan Refining Co. amounted to only 8.187 per centum

of the whole, an amount which is notably below the normal. This showing was undoubtedly due in part, as the trial judge suggests, to the fact that in purchasing the copra directly from the producers the plaintiff's buyers sometimes estimated the picul at sixty-eight kilos, or somewhat less, but in no case at the true weight of 63.25 kilos. The plaintiff was therefore protected in a great measure from loss by shrinkage by purchasing upon a different basis of weight from that upon which he sold, otherwise the shrinkage shown in the result must have been much greater than that which actually appeared. But even considering this fact, it is quite evident that the demonstrated shrinkage of 8.187 per centum was extremely moderate average; and this fact goes to show that there was no undue delay on the part of the Visayan Refining Co. in supplying transportation for the copra collected by the plaintiff.

In the course of his well-reasoned opinion upon this branch of the case, the trial judge calls attention to the fact that it is expressly provided in paragraph two of the contract that the shrinkage of copra from the time of its delivery to the party of the second part till its arrival at Opon should fall upon the plaintiff, from whence it is to be interfered that the parties intended that the copra should be paid for according to its weight upon arrival at Opon regardless of its weight when first purchased; and such appears to have been the uniform practice of the parties in settling their accounts for the copra delivered over a period of nearly two years.

From what has been said it follows that the first cause of action set forth in the complaint is not well founded, and the trial judge committed no error in absolving the plaintiff therefrom.

It appears that in the first six months of the year 1919, the plaintiff found that its transactions with the Visayan Refining Co. had not been productive of reasonable profit, a circumstance which the plaintiff attributed to loss of weight or shrinkage in the copra from the time of purchase to its arrival at Opon; and the matter was taken up with the officials of said company, with the result that a bounty amounting to P15,610.41 was paid to the plaintiff by the Visayan Refining Co. In the ninth paragraph of the complaint the plaintiff alleges that this payment was made upon account of shrinkage, for which the Visayan Refining Co. admitted itself to be liable; and it is suggested that the making of this payment operated as a recognition on the part of the Visayan refining Co. of the justice of the plaintiff's claim with respect to the shrinkage in all subsequent transactions. With this proposition we cannot agree. At most the payment appears to have been made in recognition of an existing claim, without involving any commitment as to liability on the part of the defendant in the future; and furthermore it appears to have been in the nature of a mere gratuity given by the company in order to encourage the plaintiff and to assure that the plaintiff's organization would be kept in an efficient state for future activities. It is certain that no general liability for plaintiff's losses was assumed for the future; and the defendant on more than one occasion thereafter expressly disclaimed liability for such losses.

As already stated purchases of copra by the defendant were suspended in the month of July, 1920. At this time the plaintiff had an expensive organization which had been built up chiefly, we suppose, with a view to the buying of copra; and this organization was maintained practically intact for nearly a year after the suspension of purchases by the Visayan Refining Co. Indeed in October, 1920, the plaintiff added an additional agency at Gubat to the twenty or more already in existence. As a second cause of action the plaintiff seeks to recover the sum of P110,000, the alleged amount expended by the plaintiff in maintaining and extending its organization as above stated. As a basis for the defendant's liability in this respect it is alleged that said organization was maintained and extended at the express request, or requirement, of the defendant, in conjunction with repeated assurances that the defendant would soon resume activity as a purchaser of copra.

With reference to this cause of action the trial judge found that the plaintiff, as claimed, had incurred expenses at the request of the defendant and upon its representation that the plaintiff would be fully compensated therefor in the future. Instead, however, of allowing the plaintiff the entire amount claimed, his Honor gave judgment for only thirty per centum of said amount, in view of the fact that the

plaintiff's transactions in copra had amounted in the past only to about thirty per centum of the total business transacted by it. Estimated upon this basis, the amount recognized as constituting a just claim was found to be P49,626.68, and for this amount judgment was rendered against the defendant.

The discussion of this branch of the appeal involves the sole question whether the plaintiff's expense in maintaining and extending its organization for the purchase of copra in the period between July, 1920, to July, 1921, were incurred at the instance and request of the defendant, or upon any promise of the defendant to make the expenditure good. A careful examination of the evidence, mostly of a documentary character, is, in our opinion, convincing that the supposed liability does not exist.

By recurring to paragraph four of the contract between the plaintiff and the Visayan Refining Co. it will be seen that the latter agreed to keep the plaintiff advised of the prevailing prices paid for the copra in the Cebu market. In compliance with this obligation the Visayan Refining Co. was accustomed to send out "trade letters" from time to time its various clients in the southern provinces of whom the plaintiff was one. In these letters the manager of the company was accustomed to make comment upon the state of the market and to give such information as might be of interest or value to the recipients of the letters. From the series of letters thus sent to Albaladejo y Cia. during the latter half of 1920, we here reproduce the following excerpts:

(Letter of July 2, 1920, from K.B. Day, General Manager of the Visayan Refining Co., to Albaladejo y Cia.)

The copra market is still very weak. I have spent the past two weeks in Manila studying conditions and find that practically no business at all is being done. A few of the mills having provincial agents are accepting small deliveries, but I do not suppose that 500 piculs of copra are changing hands a day. Buyers are offering from P13 to P15, depending on quality, and sellers are offering to sell at anywhere from P16 to P18, but no business can be done for the simple reason that the banks will not lend the mills any money to buy copra with at this time.

Reports from the United States are to the effect that the oil market is in a very serious and depressed condition and that large quantities of oil cannot be disposed of at any price.

x x x x x x x x x

Under this conditions it is imperative that this mill buy no more copra than it can possibly help at the present time. We are not anxious to compete, nor do we wish to purchase same in competition with others. We do, however, desire to keep our agents doing business and trust that they will continue to hold their parroquianos (customers), buying only minimum quantities at present.

The local market has not changed since last week, and our liquidating price is P14.

(Letter of July 9, 1920, from Visayan Refining Co. to Albaladejo y Cia.)

Notify your subagents to drop out of the market temporarily. We do not desire to purchase at present.

(Letter of July 10, 1920, from K. B. Day, General Manager, to Albaladejo y Cia.)

The market continues to grow weaker. Conditions are so uncertain that this company desires to drop out of the copra market until conditions have a chance to readjust themselves. We

request therefore that our agents drop out of active competition for copra temporarily. Stocks that are at present on hand will, of course, be liquidated, but no new stocks should be acquired. Agents should do their best to keep their organizations together temporarily, for we expect to be in the market again soon stronger than ever. We expect the cooperation of agents in making this effective; and if they give us this cooperation, we will endeavor to see that they do not lose by the transaction in the long run. This company has been receiving copra from its agents for a long time at prices which have netted it a loss. The company has been supporting its agents during this period. It now expects the same support from its agents. Agents having stocks actually on hand in their bodegas should telegraph us the quantity immediately and we will protect same. But stocks not actually in bodegas cannot be considered.

(Letter of July 17, 1920, from K.B. Day to Albaladejo y Cia.)

Conditions have changed very little in the copra market since last reports. . . . We are in the same position as last week and are out of the market.

For the benefit of our agents, we wish to explain in a few words just why we are have been forced to close down our mill until the arrival of a boat to load some of our stocks on hand. We have large stocks of copra. The market for oil is so uncertain that we do not care to increase these stocks until such time as we know that the market has touched the bottom. As soon as this period of uncertainty is over, we expect to be in the market again stronger than ever, but it is only the part of business wisdom to play safe at such times as these.

Owing to the very small amounts of copra now in the provinces, we do not think that our agents will lose anything by our being out of the market. On the contrary, the producers of copra will have a chance to allow their nuts to mature on the trees so that the quality of copra which you will receive when we again are in the market should be much better than what you have been receiving in the past. Due to the high prices and scarcity of copra a large proportion of the copra we have received has been made from unripe coconuts and in order to keep revenue coming in the producers have kept harvesting these coconuts without giving them a chance to reach maturity. This period now should give them the chance to let their nuts ripen and should give you a better copra in the future which will shrink less and be more satisfactory both from your standpoint and ours. Please do all you can to assist us at this time. We shall greatly appreciate your cooperation.lawphi 1.net

(Letter of August 7, 1920, from H.U. Umstead, Assistant General Manager, to Albaladejo y Cia.)

The copra situation in Manila remains unchanged and the outlook is still uncertain. Arrivals continue small.

We are still out of the market and are not yet in a position to give you buying orders. We trust, however, that within the next few days weeks we may be able to reenter the market and resume our former activity.

x x x x x x x x x

While we are not of the market we have no objection whatever to our agents selling copra to other purchasers, if by doing so they are able to keep themselves in the market and retain their parroquianos(customers). We do not, however, wish you to use our money, for this purpose, nor do we want you to buy copra on speculation with the idea in mind that we will take it off of your hands at high prices when we reenter the market. We wish to warn you against this now so that you will not be working under any misapprehension.

In this same mail, we are sending you a notice of change of organization. In your dealings with us hereafter, will you kindly address all communications to the Philippine Refining Corporation, Cebu, which you will understand will be delivered to us.

(Letter of August 21, 1920, from Philippine Refining Corporation, by K.B. Day, to Albaladejo y Cia.)

We are not yet in the market, but, as we have indicated before, are hopeful of renewing our activities soon. We shall advise all our agents seasonably of our return to the market. . . .

We are preparing new form of agreement between ourselves and our agents and hope to have them completed in time to refer them to our agents in the course of the next week or ten days.

All agents should endeavor to liquidate outstanding advances at this time because this is a particularly good time to clean out old accounts and be on a business basis when we return to the market. We request that our agents concentrate their attention on this point during the coming week.lawphi1.net

(Letter of October 16, 1920, from K.B. Day, Manager, to Albaladejo y Cia.)

Copra in Manila and coconut oil in the United States have taken a severe drop during the past week. The Cebu price seems to have remained unchanged, but we look for an early drop in the local market.

We have received orders from our president in New York to buy no more copra until the situation becomes more favorable. We had hoped and expected to be in the market actively before this time, but this most unexpected reaction in the market makes the date of our entry in it more doubtful.

With this in view, we hereby notify our agents that we can accept no more copra and advance no more money until we have permission from our president to do so. We request, therefore, that you go entirely out of the market, so far as we are concerned, with the exception of receiving copra against outstanding accounts.

In case any agent be compelled to take in copra and desire to send same to us, we will be glad to sell same for him to the highest bidder in Cebu. We will make no charge for our services in this connection, but the copra must be forwarded to us on consignment only so that we will not appear as buyers and be required to pay the internal-revenue tax.

We are extremely sorry to be compelled to make the present announcement to you, but the market is such that our president does not deem it wise for us to purchase copra at present, and, with this in view, we have no alternative other than to comply with his orders. We hope that our agents will realize the spirit in which these orders are given, and will do all they can to remain faithful to us until such time as we can reenter the market, which we hope and believe will be within a comparatively short time.

(Special Letter of October 16, 1920, from Philippine Refining Corporation, by K.B. Day, to Albaladejo y Cia.)

We have received very strict instructions from New York temporarily to suspend the purchase of copra, and of course we must comply therewith. However, should you find yourselves obliged to buy copra in connection with your business activities, and cannot dispose of it

advantageously in Cebu, we shall be glad to receive your copra under the condition that we shall sell it in the market on your account to the highest bidder, or, in other words, we offer you our services free, to sell your copra to the best possible advantages that the local market may offer, provided that, in doing so, we be not obliged to accept your copra as a purchase when there be no market for this product.

Whenever you find yourselves obliged to buy copra in order to liquidate pending advances, we can accept it provided that, so long as present conditions prevail, we be not required to make further cash advances.

We shall quote no further from letters written by the management of the Philippine Refining Corporation to the plaintiff, as we find nothing in the correspondence which reflects an attitude different from that reflected in the matter above quoted. It is only necessary to add that the hope so frequently expressed in the letters, to the effect that the Philippine Refining Corporation would soon enter the market as a buyer of copra on a more extensive scale than its predecessor, was not destined to be realized, and the factory at Opon remained closed.

But it is quite obvious that there is nothing in these letters on which to hold the defendant liable for the expenses incurred by the plaintiff in keeping its organization intact during the period now under consideration. Nor does the oral testimony submitted by the plaintiff materially change the situation in any respect. Furthermore, the allegation in the complaint that one agency in particular (Gubat) had been opened on October 1, 1920, at the special instance and request of the defendant, is not at all sustained by the evidence.

We note that in his letter of July 10, 1920, Mr. Day suggested that if the various purchasing agents of the Visayan Refining Co. would keep their organization intact, the company would endeavor to see that they should not lose by the transaction in the long run. These words afford no sufficient basis for the conclusion, which the trial judge deduced therefrom, that the defendant is bound to compensate the plaintiff for the expenses incurred in maintaining its organization. The correspondence sufficiently shows on its face that there was no intention on the part of the company to lay a basis for contractual liability of any sort; and the plaintiff must have understood the letters in that light. The parties could undoubtedly have contracted about it, but there was clearly no intention to enter into contractual relation; and the law will not raise a contract by implication against the intention of the parties. The inducement held forth was that, when purchasing should be resumed, the plaintiff would be compensated by the profits then to be earned for any expense that would be incurred in keeping its organization intact. It is needless to say that there is no proof showing that the officials of the defendant acted in bad faith in holding out this hope.

In the appellant's brief the contention is advanced that the contract between the plaintiff and the Visayan Refining Co. created the relation of principal and agent between the parties, and the reliance is placed upon article 1729 of the Civil Code which requires the principal to indemnify the agent for damages incurred in carrying out the agency. Attentive perusal of the contract is, however, convincing to the effect that the relation between the parties was not that of principal and agent in so far as relates to the purchase of copra by the plaintiff. It is true that the Visayan Refining Co. made the plaintiff one of its instruments for the collection of copra; but it is clear that in making its purchases from the producers the plaintiff was buying upon its own account and that when it turned over the copra to the Visayan Refining Co., pursuant to that agreement, a second sale was effected. In paragraph three of the contract it is declared that during the continuance of this contract the Visayan Refining Co. would not appoint any other agent for the purchase of copra in Legaspi; and this gives rise indirectly to the inference that the plaintiff was considered its buying agent. But the use of this term in one clause of the contract cannot dominate the real nature of the agreement as revealed in other clauses, no less than in the caption of the agreement itself. In some of the trade letters also the various instrumentalities

used by the Visayan Refining Co. for the collection of copra are spoken of as agents. But this designation was evidently used for convenience; and it is very clear that in its activities as a buyer the plaintiff was acting upon its own account and not as agents, in the legal sense, of the Visayan Refining Co. The title to all of the copra purchased by the plaintiff undoubtedly remained in it until it was delivered by way of subsequent sale to said company.

For the reasons stated we are of the opinion that no liability on the part of the defendant is shown upon the plaintiff's second cause of action, and the judgment of the trial court on this part of the case is erroneous.

The appealed judgment will therefore be affirmed in so far as it absolves the defendant from the first cause of action and will be reversed in so far as it gives judgment against the defendant upon the second cause of action; and the defendant will be completely absolved from the complaint. So ordered, without express findings as to costs of either instance.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-11908 February 4, 1918

ANTONIO M.A BARRETTO, plaintiff-appellant, vs. JOSE SANTA MARINA and "LA INSULAR," defendants-appellees.

Alfredo Chcote and Jose Arnaiz for appellant. William A. Kincaid and Kincaid and Perkins for appellee.

CARSON, J.:

The material facts upon which our disposition of this appeal necessarily turns are set out at length in our opinion in the case of Barretto vs. Santa Marina, decided December 2, 1913 (26 Phil rep., 200). This court having ruled against the plaintiff's contention in the former case, he now sets up a claim for interest at the legal rate upon the amount of the purchase price of his share (participacion) in the business from the 1st day of July, 1909, to the 22d day of November, 1910, the day upon which it was turned over to him.

The finding of facts, and the reasoning upon which we based our rulings in the former case, are manifestly conclusive in the present case as to the plaintiff's claim of a right to interest from the first of July, 1909, to the third of May, 1910.

In the former case we held that the sale of plaintiff's share (participacion) in the tobacco factory was consummated on the latter date; that the valuation set upon his share (participacion) in business was determined as of that day by the committee charged with the duty of ascertaining the cash value of this share (participacion) in order to determine the exact amount which the parties had agreed upon as the purchase price to be paid therefor; and that the committee had included that the plaintiff's share of the profits of the business down to the third of May, 1910, in their estimate of the value of his share (participacion) in the business of that date.

These rulings were made after a review of the same record which is now relied upon by the plaintiff in support of his claim of interest upon the amount fixed by the committee as the true value of his share (participacion) in the business. We find nothing in the record of the contention of counsel in this regard which would justify or necessitate a modification or reversal of the conclusions reached by us in our former opinion.

Plaintiff's share (participacion) in the business having been sold on the 3rd day of May, 1910, for a stipulated price, that is to say, for its value on that day as fixed by the valuation committee, it is very clear that he is not entitled to interest on the amount fixed by the committee, prior to the date on which the sale was consummated (3rd of may, 1910).

So also plaintiff's contention that he should be allowed interest on the amount of the purchase price from the date of the sale, May 3, 1910, down to the day upon which the money was actually turned over to him, November 22, 1910, cannot be sustained. Under the express terms of the agreement for the sale on May 3, 1910, the plaintiff agreed to accept, and the defendant to pay, the amount which

the committee should find to be the true value of plaintiff's share (participacion) in the business as of that day. Under the agreement the defendant neither expressly nor impliedly obligated himself to pay interest on that amount pending the report of the committee. The only contractual obligation assumed by him was that he would pay the amount fixed by the committee in cash immediately upon the making of the award by the committee, and in accordance with its terms.

The committee's report is dated November 14, 1910, and it appears that promptly upon the submission of this report, the amount awarded the plaintiff (P280,025.16) was paid over by the defendant to the plaintiff in cash; and the letter of counsel for plaintiff dated November 17, 1910, tendering a formal deed of sale of plaintiff's share (participacion) in the business and making demand for the purchase price as fixed by the committee, read together with the formal deed of sale executed November 22, 1910, with its acknowledgment of the receipt of the purchase price, leaves no room for doubt that at that time the parties understood and accepted the purchase price therein set forth as full payment of plaintiff's share (participacion) in the business in exact conformity with the conditions imposed in the agreement consummated to May 3, 1910.

The right to interest arises either by virtue of a contract or by way of damages for delay or failure (demora) to pay the principal on which interest is demanded, at the time when the debtor is obligated to make such payment. In the case at bar where was no contract, express or implied, for the payment of interest pending the award of the committee appointed to value the property sold on May 3, 1910, and there was no delay in the punctual compliance with defendant's obligation to make immediate payment, in cash, of the amount of the award, upon the filing of the report of the committee.

We conclude that the judgment entered in the court below dismissing the complaint in this case sine die should be affirmed, with the costs of this instance against the appellant. So ordered.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-18616 March 31, 1964

VICENTE M. COLEONGCO, plaintiff-appellant, vs. EDUARDO L. CLAPAROLS, defendant-appellee.

San Juan, Africa and Benedicto for plaintiff-appellant. Alberto Jamir for defendant-appellee.

REYES, J.B.L., J.:

Appeal by plaintiff Vicente Coleongco from a decision of the Court of First Instance of Negros Occidental (in its Civil Case No. 4170) dismissing plaintiff's action for damages, and ordering him to pay defendant Eduardo Claparols the amount of P81,387.27 plus legal interest from the filing of the counterclaim till payment thereof; P50,000 as moral and compensatory damages suffered by defendant; and costs.

A writ of preliminary attachment for the sum of P100,000 was subsequently issued against plaintiff's properties in spite of opposition thereto.

Plaintiff Coleongco, not being in conformity with the judgment appealed to this Court directly, the claims involved being in excess of P200,000.

The antecedent facts as found by the trial court and shown by the records, are as follows:

Since 1951, defendant-appellee, Eduardo L. Claparols, operated a factory for the manufacture of nails in Talisay, Occidental Negros, under the style of "Claparols Steel & Nail Plant". The raw material, nail wire, was imported from foreign sources, specially from Belgium; and Claparols had a regular dollar allocation therefor, granted by the Import Control Commission and the Central Bank. The marketing of the nails was handled by the "ABCD Commercial" of Bacolod, which was owned by a Chinaman named Kho To.1äwphï1.ñët

Losses compelled Claparols in 1953 to look for someone to finance his imports of nail wires. At first, Kho To agreed to do the financing, but on April 25, 1953, the Chinaman introduced his compadre, appellant Vicente Coleongco, to the appellee, recommending said appellant to be the financier in the stead of Kho To. Claparols agreed, and on April 25 of that year a contract (Exhibit B) was perfected between them whereby Coleongco undertook to finance and put up the funds required for the importation of the nail wire, which Claparols bound himself to convert into nails at his plant. It was agreed that Coleongco would have the exclusive distribution of the product, and the "absolute care in the marketing of these nails and the promotion of sales all over the Philippines", except the Davao Agency; that Coleongco would "share the control of all the cash" from sales or deposited in banks; that he would have a representative in the management; that all contracts and transactions should be jointly approved by both parties; that proper books would be kept and annual accounts rendered; and that profits and losses would be shared "on a 50-50 basis". The contract was renewed from one year

to year until 1958, and Coleongco's share subsequently increased by 5% of the net profit of the factory (Exhibits D, E, F).

Two days after the execution of the basic agreement, Exhibit "B", on April 27, 1953, Claparols executed in favor of Coleongco, at the latter's behest a special power of attorney (Exhibit C) to open and negotiate letters of credit, to sign contracts, bills of lading, invoices, and papers covering transactions; to represent appellee and the nail factory; and to accept payments and cash advances from dealers and distributors. Thereafter, Coleongco also became the assistant manager of the factory, and took over its business transactions, while Claparols devoted most of his time to the nail manufacture processes.

Around mid-November of 1956, appellee Claparols was disagreeably surprised by service of an alias writ of execution to enforce a judgment obtained against him by the Philippine National Bank, despite the fact that on the preceding September he had submitted an amortization plan to settle the account. Worried and alarmed, Claparols immediately left for Manila to confer with the bank authorities. Upon arrival, he learned to his dismay that the execution had been procured because of derogatory information against appellee that had reached the bank from his associate, appellant Coleongco. On July 6, 1956, the latter, without appellee's knowledge, had written to the bank —

in connection with the verbal offer — for the acquisition by me of the whole interest of Mr. Eduardo L. Claparols in the Claparols Steel & Nail Plant and the Claparols Hollow Blocks Factory" (Exhibit 36);

and later, on October 29, 1956, Coleongco had written again the bank another letter (Exhibit 35), also behind the back of appellee, wherein Coleongco charged Claparols with taking machines mortgaged to the bank, and added - .

In my humble personal opinion I presume that Mr. Eduardo L. Claparols is not serious in meeting his obligations with your bank, otherwise he had not taken these machines and equipments a sign of bad faith since the factory is making a satisfactory profit of my administration.

Fortunately, Claparols managed to arrange matters with the bank and to have the execution levy lifted. Incensed at what he regarded as disloyalty of his attorney-in-fact, he consulted lawyers. The upshot was that appellee revoked the power of attorney (Exhibit "C"), and informed Coleongco thereof (Exhibits T, T-1), by registered mail, demanding a full accounting at the same time. Coleongco, as could be expected, protested these acts of Claparols, but the latter insisted, and on the first of January, 1957 wrote a letter to Coleongco dismissing him as assistant manager of the plant and asked C. Miller & Company, auditors, to go over the books and records of the business with a view to adjusting the accounts of the associates. These last steps were taken in view of the revelation made by his machinery superintendent, Romulo Agsam, that in the course of the preceding New Year celebrations Coleongco had drawn Agsam aside and proposed that the latter should pour acid on the machinery to paralyze the factory. The examination by the auditors, summarized in Exhibits 80 and 87, found that Coleongco owed the Claparols Nail Factory the amount of P87,387.37, as of June 30, 1957.

In the meantime, Claparols had found in the factory files certain correspondence in February, 1955 between Coleongco and the nail dealer Kho To whereby the former proposed to Kho that the latter should cut his monthly advances to Claparols from P2,000 to P1,000 a month, because —

I think it is time that we do our plan to take advantage of the difficulties of Eddie with the banks for our benefit. If we can squeeze him more. I am sure that we can extend our contract with

him before it ends next year, and perhaps on better terms. If we play well our cards we might yet own his factory (Exhibit 32);

and conformably to Coleongco's proposal, Kho To had written to Claparols that "due to present business conditions" the latter could only be allowed to draw P1,000 a month beginning April, 1955 (Exhibit 33).

As the parties could not amicably settle their accounts, Coleongco filed a suit against Claparols charging breach of contract, asking for accounting, and praying for P528,762.19 as damages, and attorney's fees, to which Claparols answered, denying the charge, and counter-claiming for the rescission of the agreement with Coleongco for P561,387.99 by way of damages. After trial, the court rendered judgment, as stated at the beginning of this opinion.

In this appeal, it is first contended by the appellant Coleongco that the power of attorney (Exhibit "C") was made to protect his interest under the financing agreement (Exhibit "B") and was one coupled with an interest that the appellee Claparols had no legal power to revoke. This point can not be sustained. The financing agreement itself already contained clauses for the protection of appellant's interest, and did not call for the execution of any power of attorney in favor of Coleongco. But granting appellant's view, it must not be forgotten that a power of attorney can be made irrevocable by contract only in the sense that the principal may not recall it at his pleasure; but coupled with interest or not, the authority certainly can be revoked for a just cause, such as when the attorney-in-fact betrays the interest of the principal, as happened in this case. It is not open to serious doubt that the irrevocability of the power of attorney may not be used to shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the agent for that would amount to holding that a power coupled with an interest authorizes the agent to commit frauds against the principal.

Our new Civil Code, in Article 1172, expressly provides the contrary in prescribing that responsibility arising from fraud is demandable in all obligations, and that any waiver of action for future fraud is void. It is also on this principle that the Civil Code, in its Article 1800, declares that the powers of a partner, appointed as manager, in the articles of co-partnership are irrevocable without just or lawful cause; and an agent with power coupled with an interest can not stand on better ground than such a partner in so far as irrevocability of the power is concerned.

That the appellee Coleongco acted in bad faith towards his principal Claparols is, on the record, unquestionable. His letters to the Philippine National Bank (Exhibits 35 and 36) attempting to undermine the credit of the principal and to acquire the factory of the latter, without the principal's knowledge; Coleongco's letter to his cousin, Kho To (Exhibit 32), instructing the latter to reduce to one-half the usual monthly advances to Claparols on account of nail sales in order to squeeze said appellee and compel him to extend the contract entitling Coleongco to share in the profits of the nail factory on better terms, and ultimately "own his factory", a plan carried out by Kho's letter, Exhibit 33, reducing the advances to Claparols; Coleongco's attempt to, have Romulo Agsam pour acid on the machinery; his illegal diversion of the profits of the factory to his own benefit; and the surreptitious disposition of the Yates band resaw machine in favor of his cousin's Hong Shing Lumber Yard, made while Claparols was in Baguio in July and August of 1956, are plain acts of deliberate sabotage by the agent that fully justified the revocation of the power of attorney (Exhibit "C") by Claparols and his demand for an accounting from his agent Coleongco.

Appellant attempts to justify his letter to the Philippine National Bank (Exhibits 35 and 36), claiming that Claparols' mal-administration of the business endangered the security for the advances that he had made under the financing contract (Exhibit "B"). But if that were the case, it is to be expected that Coleongco would have first protested to Claparols himself, which he never did. Appellant likewise denies the authorship of the letter to Kho (Exhibit 32) as well as the attempt to induce Agsam to

damage the machinery of the factory. Between the testimony of Agsam and Claparols and that of Coleongco, the court below whose to believe the former, and we see no reason to alter the lower court's conclusion on the value of the evidence before it, considering that Kho's letter to Claparols (Exhibit 33) plainly corroborates and dovetails with the plan outlined in Coleongco's own letter (Exhibit 32), signed by him, and that the credibility of Coleongco is affected adversely by his own admission of his having been previously convicted of estafa (t.s.n., pp. 139, 276), a crime that implies moral turpitude. Even disregarding Coleongco's letter to his son-in-law (Exhibit 82) that so fully reveals Coleongco's lack of business scruples, the clear preponderance of evidence is against appellant.

The same remarks apply to the finding of the trial court that it was appellant Coleongco, and not Claparols, who disposed of the band resawing equipment, since said machine was received in July, 1956 and sold in August of that year to the Hong Shing Lumber Co., managed by appellant's cousin Vicente Kho. The untruth of Coleongco's charge that Claparols, upon his return from Baguio in September, 1956, admitted having sold the machine behind his associate's back is further evidenced by (a) Coleongco's letter, Exhibit "V", dated October 29, 1956, inquiring the whereabouts of the resaw equipment from Claparols (an inquiry incompatible with Claparols' previous admission); (b) by the undenied fact that the appellee was in Baguio and Coleongco was acting for him during the months of July and August when the machine was received and sold; and (c) the fact that as between the two it is Coleongco who had a clear interest in selling the sawing machine to his cousin Kho To's lumber yard. If Claparols wished to sell the machine without Coleongco's knowledge, he would not have picked the latter's cousin for a buyer.

The action of plaintiff-appellant for damages and lost profits due to the discontinuance of the financing agreement, Exhibit "B", may not prosper, because the record shows that the appellant likewise breached his part of the contract. It will be recalled that paragraph 2 of the contract, Exhibit "B", it was stipulated:

That the Party of the Second Part (Coleongco) has agreed to finance and put up all the necessary money which may be needed to pay for the importation of the raw materials needed by such nail factory and allocated by the ICC from time to time, either in cash of with whatever suitable means which the Party of the Second Part may be able to make by suitable arrangements with any well-known banking institution recognized by the Central Bank of the Philippines.

Instead of putting up all the necessary money needed to finance the imports of raw material, Coleongco merely advanced 25% in cash on account of the price and had the balance covered by surety agreements executed by Claparols and others as solidary, (joint and several) guarantors (see Exhibits G, H, I). The upshot of this arrangement was that Claparols was made to shoulder 3/4 of the payment for the imports, contrary to the financing agreement. Paragraph 11 of the latter expressly denied Coleongco any power or authority to bind Claparols without previous consultation and authority. When the balances for the cost of the importations became due, Coleongco, in some instances, paid it with the dealers' advances to the nail factory against future sales without the knowledge of Claparols (Exhibits "K" to K-11, K-13). Under paragraphs 8 and 11 of the financing agreement, Coleongco was to give preference to the operating expenses before sharing profits, so that until the operating costs were provided for, Coleongco had no right to apply the factory's income to pay his own obligations.

Again, the examination of the books by accountant Atienza of C. Miller and Co., showed that from 1954 onwards Coleongco (who had the control of the factory's cash and bank deposits, under Paragraph 11 of Exhibit "B") never liquidated and paid in full to Claparols his half of the profits, so that by the end of 1956 there was due to Claparols P38,068.41 on this account (Exhibit 91). For 1957 to 1958 Claparols financed the imports of nail wire without the help of appellant, and in view of the latter's infringement of his obligations, his acts of disloyalty previously discussed, and his diversions of factory

funds (he even bought two motor vehicles with them), we find no justification for his insistence in sharing in the factory's profit for those years, nor for the restoration of the revoked power of attorney.

The accountant's reports and testimony (specially Exhibits 80 to 87) prove that as of June 30, 1957, Coleongco owed to Claparols the sum of P83,466.34 that after some adjustment was reduced to P81,387.37, practically accepted even by appellant's auditor. The alleged discrepancies between the general ledger and the result thus arrived at was satisfactorily explained by accountant Atienza in his testimony (t.s.n., 1173-1178).

No error was, therefore, committed by the trial court in declaring the financing contract (Exh. B) properly resolved by Claparols or in rendering judgment against appellant in favor of appellee for the said amount of P81,387.37. The basic rule of contracts requires parties to act loyally toward each other in the pursuit of the common end, and appellant clearly violated the rule of good faith prescribed by Art. 1315 of the new Civil Code.

The lower court also allowed Claparols P50,000 for damages, material, moral, and exemplary, caused by the appellant Coleongco's acts in maliciously undermining appellee's credit that led the Philippine National Bank to secure a writ of execution against Claparols. Undeniably, the attempts of Coleongco to discredit and "squeeze" Claparols out of his own factory and business could not but cause the latter mental anguish and serious anxiety, as found by the court below, for which he is entitled to compensation; and the malevolence that lay behind appellee's actions justified also the imposition of exemplary or deterrent damages (Civ. Code, Art. 2232). While the award could have been made larger without violating the canons of justice, the discretion in fixing such damages primarily lay in the trial court, and we feel that the same should be respected.

IN VIEW OF THE FOREGOING, the decision appealed from is affirmed. Costs against appellant Vicente Coleongco.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-40681 October 2, 1934

DY BUNCIO & COMPANY, INC., plaintiff-appelle, vs. ONG GUAN CAN, ET AL., defendants. JUAN TONG and PUA GIOK ENG, appellants.

Pedro Escolin for appellants. G. Viola Fernando for appellee.

HULL, J.:

This is a suit over a rice mill and camarin situated at Dao, Province of Capiz. Plaintiff claims that the property belongs to its judgment debtor, Ong Guan Can, while defendants Juan Tong and Pua Giok Eng claim as owner and lessee of the owner by virtue of a deed dated July 31, 1931, by Ong Guan Can, Jr.

After trial the Court of First Instance of Capiz held that the deed was invalid and that the property was subject to the execution which has been levied on said properties by the judgment creditor of the owner. Defendants Juan Tong and Pua Giok bring this appeal and insist that the deed of the 31st of July, 1931, is valid.

The first recital of the deed is that Ong Guan Can, Jr., as agent of Ong Guan Can, the proprietor of the commercial firm of Ong Guan Can & Sons, sells the rice-mill and camarin for P13,000 and gives as his authority the power of attorney dated the 23d of May, 1928, a copy of this public instrument being attached to the deed and recorded with the deed in the office of the register of deeds of Capiz. The receipt of the money acknowledged in the deed was to the agent, and the deed was signed by the agent in his own name and without any words indicating that he was signing it for the principal.

Leaving aside the irregularities of the deed and coming to the power of attorney referred to in the deed and registered therewith, it is at once seen that it is not a general power of attorney but a limited one and does not give the express power to alienate the properties in question. (Article 1713 of the Civil Code.)

Appellants claim that this defect is cured by Exhibit 1, which purports to be a general power of attorney given to the same agent in 1920. Article 1732 of the Civil Code is silent over the partial termination of an agency. The making and accepting of a new power of attorney, whether it enlarges or decreases the power of the agent under a prior power of attorney, must be held to supplant and revoke the latter when the two are inconsistent. If the new appointment with limited powers does not revoke the general power of attorney, the execution of the second power of attorney would be a mere futile gesture.lawphi1.net

The title of Ong Guan Can not having been divested by the so-called deed of July 31, 1931, his properties are subject to attachment and execution.

The judgment appealed from is therefore affirmed. Costs against appellants. So ordered.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-14248 April 28, 1960

NEW MANILA LUMBER COMPANY, INC., plaintiff-appellant, vs. REPUBLIC OF THE PHILIPPINES, defendant-appellee.

S. F. Alidio and Associates for appellant. Office of the Solicitor General Edilberto Barot and Solicitor Ceferino S. Gaddi for appellee.

GUTIERREZ DAVID, J.:

Appeal from an order of dismissal of the Court of First Instance of Manila.

On May 8, 1958, the plaintiff lumber company filed in the court below a complaint against the defendant Republic of the Philippines for the recovery of a sum of money. The complaint alleges, among other things, that defendant, thru the Director of Schools, entered into a contract with one Alfonso Mendoza to build two school houses; that plaintiff furnished the lumber materials in the construction of the said buildings; that prior to the payment by defendant of any amount due the contractor, the latter executed powers of attorney in favor of the plaintiff "constituting it as his sole, true and lawful attorney-in-fact with specific and exclusive authority to collect and receive from the defendant any and all amounts due or may be due to said contractor from the defendant in connection with the construction of the aforesaid school buildings, as may be necessary to pay materials supplied by the plaintiff"; and that originals of the powers of attorney were received by defendant (thru the Director of Public Schools) who promised to pay plaintiff, but that it, nevertheless, paid the contractor several amounts on different occasions without first making payment to plaintiff. The complaint, therefore, prays that defendant be ordered to pay plaintiff the sum of P18,327.15, the unpaid balance of the cost of lumber supplied and used in the construction of the school buildings, with interest at the legal rate from the date same was due, plus attorney's fees and costs.

Served with a copy of the complaint, the defendant Republic of the Philippines, through the Solicitor General, moved to dismiss the same on the grounds (1) that it does not allege a sufficient cause of action, (2) that plaintiff has no right to institute the action under Act No. 3688, and (3) that the court is without jurisdiction to entertain the same against the defendant.

The motion was opposed by plaintiff, but after hearing, the court below — holding that "there is no juridical tie between plaintiff-supplier and defendant-owner — sustained the motion to dismiss on the first ground, and on June 23, 1958 issued an order dismissing plaintiff's complaint. Its motion for reconsideration having been denied, plaintiff took the present appeal.

The appeal is without merit.

Briefly stated, plaintiff's complaint seeks to enforce against the Republic of the Philippines a money claim for the payment of materials it furnished for the construction of two public school buildings undertaken by contractor Alfonso Mendoza, on the basis of powers of attorney executed by the latter

authorizing said plaintiff to collect and receive from defendant Republic any amount due or may be due to said contractor as contract price for the payment of the materials so supplied.

Section one of Public Act No. 3688, entitled "An Act for the protection of persons furnishing material and labor for the construction of public works", reads in part as follows:

SECTION 1. Any person, partnership or corporation entering into a formal contract with the Government of the Philippine Islands for the construction of any public building, or the prosecution and completion of any public work, or for repairs upon any public building or public work, shall be required, before commencing such work, to execute the usual penal bond, with good and sufficient sureties, with the additional obligation that such contractor or his or its sub-contractors shall promptly make payments to all persons supplying him or them with labor and materials in the prosecution of the work provided for in such contract; and any person, company or corporation who has furnished labor or materials in the construction or repair of any public building or public work, and payment for which has not been made, shall have the right to intervene and be made a party to any action instituted by the Government of the Philippine Islands on the bond of the contractor, and to have their rights and claims adjudicated in such action and judgment rendered thereon, subject, however, to the priority of the claim and judgment of the Government of the Philippine Islands. If the full amount of the liability of the surety on said bond is insufficient to pay the full amount of said claims and demands, then, after paying the full amount due the Government, the remainder shall be distributed pro rata among said intervenors. If no suit should be brought by the Government of the Philippine Islands within six months from the completion and final settlement of said contract, or if the Government expressly waives its right to institute action on the penal bond, then the person or persons supplying the contractor with labor and materials shall, upon application therefor, and furnishing affidavit to the department under the direction of which said work has been prosecuted, that labor or materials for the prosecution of such work have been supplied by him or them, and payment for which has not been made, be furnished with a certified copy of said contract and bond, upon which he or they shall have a right of action, and shall be, and are hereby, authorized to bring suit in the name of the Government of the Philippine Islands in the Court of First Instance in the district in which said contract was to be performed and executed, and not elsewhere, for his or their use and benefit, against said contractor and his sureties, and to prosecute the same to final judgment and execution, . . . .

In the case at bar, it is not disputed that defendant Republic has already instituted a suit against the contractor for the forfeiture of the latter's bond posted to secure the faithful performance of stipulations in the construction contract with regards to one of the two school buildings (Civil Case No. 26815, Court of First Instance of Manila). The contractor has a similar bond with respect to the other school building. Pursuant to Act 3688, plaintiff's legal remedy is, not to bring suit against the Government, there being no privity of contract between them, but to intervene in the civil case above-mentioned as an unpaid supplier of materials to the contractor, or file an action in the name of the Republic against said contractor on the latter's other bond.

Plaintiff argues that an implied contract between it and the defendant Republic arose, when the latter, thru the Director of Public Schools, on being furnished copies of the powers of attorney executed by the contractor, promised to make payment to plaintiff for the materials supplied for the construction of the school buildings. It will be observed, however, that defendant was not a party to the execution of the powers of attorney. Besides, the Director of Public Schools had no authority to bind defendant on the payment. While he was the official who entered into contract with the contractor for the construction of the school buildings, payment of the contract price was not within his exclusive control but subject to approval under existing laws not only by the Department Head (Sec. 568, Rev. Adm, Code), but also by the Auditor General.

At any rate, under the facts alleged in the complaint, the powers of attorney in question made plaintiff the contractor's agent in the collection of whatever amounts may be due the contractor from the defendant. And since it is also alleged that, after the execution of the powers of attorney, the contractor (principal) demanded and collected from defendant the money the collection of which he entrusted to plaintiff, the agency apparently has already been revoked. (Articles 1920 and 1924, new Civil Code.)

The point is made by plaintiff that the powers of attorney executed by the contractor in its favor are irrevocable and are coupled with interest. But even supposing that they are, still their alleged irrevocability cannot affect defendant who is not a party thereto. They are obligatory only on the principal who executed the agency.

Plaintiff also cites Article 1729 of the new Civil Code, which provides that —

Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. . . .

This article, however, as expressly provided in its last paragraph, "is subject to the provisions of special law." The special law governing in the present case, as already seen, is Act No. 3688.

There is another reason for upholding the order of dismissal complained of. Plaintiff's action being a claim for sum of money arising from an alleged implied contract between it and the Republic of the Philippines, the same should have been lodged with the Auditor General. The state cannot be sued without its consent.

In view of the foregoing, the order of dismissal appealed from is affirmed, with costs against plaintiff-appellant.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-5180 August 31, 1953

CONSEJO INFANTE, petitioner, vs. JOSE CUNANAN, JUAN MIJARES and THE COURT OF APPEALS, SECOND DIVISION, respondents.

Yuseco, Abdon & Yuseco for petitioner. Jose E. Erfe and Maria Luisa Gomez for respondents.

BAUTISTA ANGELO, J.:

This is a petition for review of a decision of the Court of appeals affirming the judgement of the court of origin which orders the defendant to pay the plaintiffs the sum of P2,500 with legal interest thereon from February 2,1949 and the costs of action.

Consejo Infante, defendant herein, was the owner of two parcels of land, together with a house built thereon, situated in the City of Manila and covered by Transfer Certificate of Title No. 61786. On or before November 30, 1948, she contracted the services of Jose Cunanan and Juan Mijares, plaintiff herein, to sell the above-mentioned property for a price of P30,000 subject to the condition that the purchaser would assume the mortgage existing thereon in the favor of the Rehabilitation Finance Corporation. She agreed to pay them a commission of 5 per cent on the purchase price plus whatever overprice they may obtain for the property. Plaintiffs found one Pio S. Noche who was willing to buy the property under the terms agreed upon with defendant, but when they introduced him to defendant, the latter informed them that she was no longer interested in selling the property and succeeded in making them sign a document stating therein that the written authority she had given them was already can-celled. However, on December 20, 1948, defendant dealt directly with Pio S. Noche selling to him the property for P31,000. Upon learning this transaction, plaintiffs demanded from defendant the payment of their commission, but she refused and so they brought the present action.

Defendant admitted having contracted the services of the plaintiffs to sell her property as set forth in the complaint, but stated that she agreed to pay them a commission of P1,200 only on condition that they buy her a property somewhere in Taft Avenue to where she might transfer after selling her property. Defendant avers that while plaintiffs took steps to sell her property as agreed upon, they sold the property at Taft Avenue to another party and because of this failure it was agreed that the authority she had given them be cancelled.

The lower court found that the preponderance of evidence was in favor of the plaintiffs and rendered judgement sentensing the defendant to pay the plaintiff the sum of P2,500 with legal interest thereon from February 2,1949 plus the costs of action. This decision was affirmed in toto by the Court of Appeals.

There is no dispute that respondents were authorized by petitioner to sell her property for the sum of P30,000 with the understanding that they will be given a commission of 5 percent plus whatever overprice they may obtain for the property. Petitioner, however, contends that authority has already been withdrawn on November 30, 1948 when, by the voluntary act of respondents, they executed a

document stating that said authority shall be considered cancelled and without any effect, so that when petitioner sold the property to Pio S. Noche on December 20, 1948, she was already free from her commitment with respondents and, therefore, was not in duty bound to pay them any commission for the transaction..

If the facts were as claimed by petitioner, there is in-deed no doubt that she would have no obligation to pay respondents the commission which was promised them under the original authority because, under the old Civil Code, her right to withdraw such authority is recognized. A principal may withdraw the authority given to an agent at will. (Article 1733.) But this fact is disputed. Thus, respondents claim that while they agreed to cancel the written authority given to them, they did so merely upon the verbal assurance given by petitioner that, should the property be sold to their own buyer, Pio S. Noche, they would be given the commission agreed upon. True, this verbal assurance does not appear in the written cancellation, Exhibit 1, and, on the other hand, it is disputed by petitioner, but respondents were allowed to present oral evidence to prove it, and this is now assigned as error in this petition for review.

The plea that oral evidence should not have been allowed to prove the alleged verbal assurance is well taken it appearing that the written authority given to respondents has been cancelled in a written statement. The rule on this matter is that "When the terms of an agreement have been reduced to writing, it is to be considered as containing all those terms, and, therefore, there can be, between parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing." (Section 22, Rule 123, Rules of Court.) The only exceptions to this rule are: "(a)Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings"; and "(b) Where there is an intrinsic ambiguity in the writing." (Ibid.) There is no doubt that the point raised does not come under any of the cases excepted, for there is nothing therein that has been put in issue by respondents in their complaint. The terms of the document, Exhibit 1, seem to be clear and they do not contain any reservation which may in any way run counter to the clear intention of the parties.

But even disregarding the oral evidence adduced by respondents in contravention of the parole evidence rule, we are, however, of the opinion that there is enough justification for the conclusion reached by the lower court as well as by the Court of Appeals to the effect that respondents are entitled to the commission originally agreed upon. It is a fact found by the Court of Appeals that after petitioner had given the written authority to respondents to sell her land for the sum of P30,000, respondents found a buyer in the person of one Pio S. Noche who was willing to buy the property under the terms agreed upon, and this matter was immediately brought to the knowledge of petitioner. But the latter, perhaps by way of strategem, advised respondents that she was no longer interested in the deal and was able to prevail upon them to sign a document agreeing to the cancellation of the written authority.

That petitioner had changed her mind even if respondents had found a buyer who was willing to close the deal, is a matter that would not give rise to a legal consequence if respondents agree to call off the transaction in deference to the request of the petitioner. But the situation varies if one of the parties takes advantage of the benevolence of the other and acts in a manner that would promote his own selfish interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without ac-cording to the party prejudiced the reward which is due him. This is the situation in which respondents were placed by petitioner. Petitioner took advantage of the services rendered by respondents, but believing that she could evade payment of their commission, she made use of a ruse by inducing them to sign the deed of cancellation Exhibit 1. This act of subversion cannot be sanctioned and cannot serve as basis for petitioner to escape payment of the commission agreed upon.

Wherefore, the decision appealed from is hereby affirmed, with costs against petitioner.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-28050 March 13, 1928

FEDERICO VALERA, plaintiff-appellant, vs. MIGUEL VELASCO, defendant-appellee.

Jose Martinez San Agustin for appellant. Vicente O. Romualdez, Crispulo T. Manubay and Placido P. Reyes for appellee.

VILLA-REAL, J.:

This is an appeal taken by Federico Valera from the judgment of the Court of First Instance of Manila dismissing his complaint against Miguel Velasco, on the ground that he has not satisfactorily proven his right of action.

In support of his appeal, the appellant assigns the following alleged as committed by the trial court in its judgment, to wit: (1) The lower court erred in holding that one of the ways of terminating an agency is by the express or tacit renunciation of the agent; (2) the lower court erred in holding that the institution of a civil action and the execution of the judgment obtained by the agent against his principal is but renunciation of the powers conferred on the agent; (3) the lower erred in holding that, even if the sale by Eduardo Hernandez to the plaintiff Federico Valera be declared void, such a declaration could not prevail over the rights of the defendant Miguel Velasco inasmuch as the right redemption was exercised by neither Eduardo Hernandez nor the plaintiff Federico Valera; (4) the lower court erred in not finding that the defendant Miguel Velasco was, and at present is, an authorized representative of the plaintiff Federico Valera; (5) the lower court erred in not annulling the sale made by the sheriff at public auction to defendant Miguel Velasco, Exhibit K; (6) the lower court erred in failing to annul the sale executed by Eduardo Hernandez to the plaintiff Federico Valera, Exhibit C; (7) the lower court erred in not annulling Exhibit L, that is, the sale at public auction of the right to repurchase the land in question to Salvador Vallejo; (8) the lower court erred in not declaring Exhibit M null and void, which is the sale by Salvador Vallejo to defendant Miguel Velasco; (9) the lower court erred in not ordering the defendant Miguel Velasco to liquidate his accounts as agent of the plaintiff Federico Valera; (10) the lower court erred in not awarding plaintiff the P5,000 damages prayed for.

The pertinent facts necessary for the solution of the questions raised by the above quoted assignments of error are contained in the decision appealed from and are as follows:

By virtue of the powers of attorney, Exhibits X and Z, executed by the plaintiff on April 11, 1919, and on August 8, 1922, the defendant was appointed attorney-in-fact of the said plaintiff with authority to manage his property in the Philippines, consisting of the usufruct of a real property located of Echague Street, City of Manila.

The defendant accepted both powers of attorney, managed plaintiff's property, reported his operations, and rendered accounts of his administration; and on March 31, 1923 presented exhibit F to plaintiff, which is the final account of his administration for said month, wherein it appears that there is a balance of P3,058.33 in favor of the plaintiff.

The liquidation of accounts revealed that the plaintiff owed the defendant P1,100, and as misunderstanding arose between them, the defendant brought suit against the plaintiff, civil case No. 23447 of this court. Judgment was rendered in his favor on March 28, 1923, and after the writ of execution was issued, the sheriff levied upon the plaintiff's right of usufruct, sold it at public auction and adjudicated it to the defendant in payment of all of his claim.

Subsequently, on May 11, 1923, the plaintiff sold his right of redemption to one Eduardo Hernandez, for the sum of P200 (Exhibit A). On September 4, 1923, this purchaser conveyed the same right of redemption, for the sum of P200, to the plaintiff himself, Federico Valera (Exhibit C).

After the plaintiff had recovered his right of redemption, one Salvador Vallejo, who had an execution upon a judgment against the plaintiff rendered in a civil case against the latter, levied upon said right of redemption, which was sold by the sheriff at public auction to Salvador Vallejo for P250 and was definitely adjudicated to him. Later, he transferred said right of redemption to the defendant Velasco. This is how the title to the right of usufruct to the aforementioned property later came to vest the said defendant.

As the first two assignments of error are very closely related to each other, we will consider them jointly.

Article 1732 of the Civil Code reads as follows:

Art. 1732. Agency is terminated:

1. By revocation;

2. By the withdrawal of the agent;

3. By the death, interdiction, bankruptcy, or insolvency of the principal or of the agent.

And article 1736 of the same Code provides that:

Art. 1736. An agent may withdraw from the agency by giving notice to the principal. Should the latter suffer any damage through the withdrawal, the agent must indemnify him therefore, unless the agent's reason for his withdrawal should be the impossibility of continuing to act as such without serious detriment to himself.

In the case of De la Peña vs. Hidalgo (16 Phil., 450), this court said laid down the following rule:

1. AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY. — When the agent and administrator of property informs his principal by letter that for reasons of health and medical treatment he is about to depart from the place where he is executing his trust and wherein the said property is situated, and abandons the property, turns it over to a third party, renders accounts of its revenues up to the date on which he ceases to hold his position and transmits to his principal statement which summarizes and embraces all the balances of his accounts since he began the administration to the date of the termination of his trust, and, without stating when he may return to take charge of the administration of the said property, asks his principal to execute a power of attorney in due form in favor of a transmit the same to another person who took charge of the administration of the said property, it is but reasonable and just to conclude that the said agent had expressly and definitely renounced his agency and that such

agency duly terminated, in accordance with the provisions of article 1732 of the Civil Code, and, although the agent in his aforementioned letter did not use the words "renouncing the agency," yet such words, were undoubtedly so understood and accepted by the principal, because of the lapse of nearly nine years up to the time of the latter's death, without his having interrogated either the renouncing agent, disapproving what he had done, or the person who substituted the latter.

The misunderstanding between the plaintiff and the defendant over the payment of the balance of P1,000 due the latter, as a result of the liquidation of the accounts between them arising from the collections by virtue of the former's usufructuary right, who was the principal, made by the latter as his agent, and the fact that the said defendant brought suit against the said principal on March 28, 1928 for the payment of said balance, more than prove the breach of the juridical relation between them; for, although the agent has not expressly told his principal that he renounced the agency, yet neither dignity nor decorum permits the latter to continue representing a person who has adopted such an antagonistic attitude towards him. When the agent filed a complaint against his principal for recovery of a sum of money arising from the liquidation of the accounts between them in connection with the agency, Federico Valera could not have understood otherwise than that Miguel Velasco renounced the agency; because his act was more expressive than words and could not have caused any doubt. (2 C. J., 543.) In order to terminate their relations by virtue of the agency the defendant, as agent, rendered his final account on March 31, 1923 to the plaintiff, as principal.

Briefly, then, the fact that an agent institutes an action against his principal for the recovery of the balance in his favor resulting from the liquidation of the accounts between them arising from the agency, and renders and final account of his operations, is equivalent to an express renunciation of the agency, and terminates the juridical relation between them.

If, as we have found, the defendant-appellee Miguel Velasco, in adopting a hostile attitude towards his principal, suing him for the collection of the balance in his favor, resulting from the liquidation of the agency accounts, ceased ipso facto to be the agent of the plaintiff-appellant, said agent's purchase of the aforesaid principal's right of usufruct at public auction held by virtue of an execution issued upon the judgment rendered in favor of the former and against the latter, is valid and legal, and the lower court did not commit the fourth and fifth assignments of error attributed to it by the plaintiff-appellant.

In regard to the third assignment of error, it is deemed unnecessary to discuss the validity of the sale made by Federico Valera to Eduardo Hernandez of his right of redemption in the sale of his usufructuary right made by the sheriff by virtue of the execution of the judgment in favor of Miguel Velasco and against the said Federico Valera; and the same thing is true as to the validity of the resale of the same right of redemption made by Eduardo Hernandez to Federico Valera; inasmuch as Miguel Velasco's purchase at public auction held by virtue of an execution of Federico Valera's usufructuary right is valid and legal, and as neither the latter nor Eduardo Hernandez exercised his right of redemption within the legal period, the purchaser's title became absolute.

Moreover, the defendant-appellee, Miguel Velasco, having acquired Federico Valera's right of redemption from Salvador Vallejo, who had acquired it at public auction by virtue of a writ of execution issued upon the judgment obtained by the said Vallejo against the said Valera, the latter lost all right to said usufruct.

And even supposing that Eduardo Hernandez had been tricked by Miguel Velasco into selling Federico Valera's right of repurchase to the latter so that Salvador Vallejo might levy an execution on it, and even supposing that said resale was null for lack of consideration, yet, inasmuch as Eduardo Hernandez did not present a third party claim when the right was levied upon for the execution of the judgment obtained by Vallejo against Federico Vallera, nor did he file a complaint to recover said right

before the period of redemption expired, said Eduardo Hernandez, and much less Federico Valera, cannot now contest the validity of said resale, for the reason that the one-year period of redemption has already elapsed.

Neither did the trial court err in not ordering Miguel Velasco to render a liquidation of accounts from March 31, 1923, inasmuch as he had acquired the rights of the plaintiff by purchase at the execution sale, and as purchaser, he was entitled to receive the rents from the date of the sale until the date of the repurchase, considering them as part of the redemption price; but not having exercised the right repurchase during the legal period, and the title of the repurchaser having become absolute, the latter did not have to account for said rents.

Summarizing, the conclusion is reached that the disagreements between an agent and his principal with respect to the agency, and the filing of a civil action by the former against the latter for the collection of the balance in favor of the agent, resulting from a liquidation of the agency accounts, are facts showing a rupture of relations, and the complaint is equivalent to an express renunciation of the agency, and is more expressive than if the agent had merely said, "I renounce the agency."

By virtue of the foregoing, and finding no error in the judgment appealed from, the same is hereby affirmed in all its parts, with costs against the appellant. So ordered.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-11415 May 25, 1959

MANUEL BUASON and LOLITA M. REYES, plaintiffs-appellants, vs. MARIANO PANUYAS, defendant-appellee.

Garcia and Jacinto, for appellants. Servando Cleto for appellee.

PADILLA, J.:

This is an appeal from a judgment of the Court of First Instance of Nueva Ecija dismissing an action brought by the spouses Manuel Buason and Lolita M. Reyes for annulment of a deed of sale in favor of the defendant, cancellation of transfer certificate of title No. 8419 issued in the name of the defendant and his wife, declaration that the sale in their favor is valid, recovery of possession of the parcel of land described in the complaint from the defendant, damages, attorney's fees and costs. (Civil No. 2144.)

In their lifetime the spouses Buenaventura Dayao and Eugenia Vega acquired by homestead patent a parcel of land situated at barrio Gabaldon, municipality of Muñoz, province of Nueva Ecija, containing an area of 14.8413 hectares covered by original certificate of title No. 1187 (Exhibit C). On 29 October 1930 they executed a power of attorney authorizing Eustaquio Bayuga to engage the services of an attorney to prosecute their case against Leonardo Gambito for annulment of a contract of sale of the parcel of land (civil No. 5787 of the same court) and after the termination of the case in their favor to sell it, and from the proceeds of the sale to deduct whatever expenses he had incurred in the litigation (Exhibit B). On 14 March 1934 Buenaventura Dayao died leaving his wife Eugenia Vega and children Pablo, Teodoro, Fortunata and Juliana, all surnamed Dayao. On 21 march 1939 his four children executed a deed of sale conveying 12.8413 hectares of the parcel of land to the appellants, the spouses Manuel Buason and Lolita M. Reyes (Exhibit A). Their mother Eugenia Vega affixed her thumbmark to the deed of sale as witness (Exhibit A). The appellants took possession of the parcel of land through their tenants in 1939. On 18 July 1944 Eustaquio Bayuga sold 8 hectares of the same parcel of land to the spouses Mariano Panuyas (appellee herein) and Sotera B. Cruz (Exhibit D). Eustaquio Bayuga died on 25 March 1946 and Eugenia Vega in 1954.

The appellants and the appellee claim ownership to the same parcel of land. In their complaint the appellants prayed that the appellee be ordered to deliver possession of the part of the parcel of land held by him; that the deed of sale of that part of the parcel of land held by the appellee executed by Eustaquio Bayuga in his favor and of his wife (Exhibit D) be declared null and void and that transfer certificate of title No. 8419 issued in their name be cancelled; that the deed of sale of the parcel of land executed by the children and heirs of Buenaventura Dayao in their favor (Exhibit A) be declared valid; that the appellee be ordered to pay them damages and attorney's fees in the sum of P9,600; and that he ordered to pay the costs of the suit. The appellees affirmative defenses are that he and his wife were buyers in good faith and for valuable consideration; that appellant's causes of action are barred by the statute of limitations; that the complaint states no cause of action; that the claim on which their action is based is unenforceable under the statute of frauds; and that the appellants are guilty of laches. By way of counterclaim, he prayed that for bringing a clearly unfounded suit against him which

depreciated the value of the land and injured his good reputation, the appellants be ordered to pay him the sums of P5,000 as actual damages and P10,000 as moral damages.

After trial on 20 August 1956 the Court rendered judgment holding that the appellants' action is barred by the statute of limitations and dismissing their complaint. Their motion for reconsideration filed on 23 August 1956. Hence this appeal upon questions of law.

It appears that the appellants did not register the sale of 12.8413 hectares of the parcel of land in question executed in their favor by the Dayao children on 21 March 1939 after the death of their father Buenaventura Dayao. On the other hand, the power of attorney executed by Buenaventura Dayao on 29 October 1930 authorizing Eustaquio Bayuga to sell the parcel of land (Exhibit B) was annotated or inscribed on the back of the original certificate of title No. 1187 (Exhibit C) as Entry No. 16836/H-1187, and the sale executed by Eustaquio Bayuga in favor of the appellee Mariano Panuyas and his wife Sotera B. Cruz under the aforesaid power of attorney was annotated or inscribed on the back of the same original certificate of title (Exhibit C) as Entry No 778/H-1187. It does not appear that the appellee and his wife had actual knowledge of the previous sale. In the absence of such knowledge, they had a right to rely on the face of the certificate of title of the registered owners and of the authority conferred by them upon the agent also recorded on the back of the certificate of title. As this is a case of double sale of land registered under the Land Registration Act, he who recorded the sale in the Registry of Deeds has a better right than he who did not.1

As to the appellants' contention that, as the death of the principal on 14 March 1934 ended the authority of the agent,2 the sale of 8 hectares of the parcel of land by the agent to the appellee Mariano Panuyas and his wife Sotera B. Cruz was null and void, suffice it to state that is has not been shown that the agent knew of his principal's demise, and for that reason article 1738, old Civil code or 1931, new Civil Code, which provides:

Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good faith is the law applicable to the point raised by the appellants.

The judgment appealed from is affirmed, with costs against the appellants.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-17043 January 31, 1961

NATIVIDAD HERRERA, assisted by her husband EMIGDIO SALAZAR, plaintiffs-appellants, vs. LUY KIM GUAN and LINO BANGAYAN, defendants-appellees.

T. de los Santos for plaintiffs-appellants. Rafael C. Climaco and Abelardo S. Fernandez for defendants-appellees.

BARRERA, J.:

This is an appeal from the decision of the Court of First Instance of Zamboanga City (a) dismissing plaintiff-appellant's complaint for the recovery of three (3) parcels of land and their produce in the sum of P320,000.00; and (b) instead, sentencing plaintiff to pay P2,000.00 for attorney's fees and P1,000.00 for expenses of litigation, to defendant Lino Bangayan, and P2,000.00 as attorney's fees and P500.00 as expenses of litigation, to the other defendant Luy Kim Guan.

The pertinent facts as found by the trial court and upon which its decision was predicated are set forth in the following portion of the decision appealed from:

The Plaintiff Natividad Herrera is the legitimate daughter of Luis Herrera, now deceased and who died in China sometime after he went to that country in the last part of 1931 or early part of 1932. The said Luis Herrera in his lifetime was the owner of three (3) parcels of land and their improvements, known as Lots 1740, 4465 and 4467 of Expediente No. 5, G.L.R.O. Record 477 and the area, nature, improvements and bound of each and every of these three (3) lots are sufficiently described in the complaint filed by the plaintiffs.

Before leaving for China, however, Luis Herrera executed on December 1, 1931, a deed of General Power of Attorney, Exhibit 'B', which authorized and empowered the defendant Kim Guan, among others to administer and sell the properties of said Luis Herrera.

Lot 1740 was originally covered by Original Certificate Title 8601 registered in the name of Luis Herrera, married to GO Bang. This lot was sold by the defendant Luy Kim in his capacity as attorney-in-fact of the deceased Luis Her to Luy Chay on September 11, 1939, as shown in Exhibit "2", corresponding deed of sale. Transfer Certificate of Title 3162, Exhibit "3", was issued to Luy Chay by virtue of deed of sale. On August 28, 1941, to secure a loan of P2,00 a deed of mortgage to the Zamboanga Mutual Building and Association was executed by Luy Chay, Exhibit "4". On January 31, 1947, the said Luy Chay executed a deed of sale, Exhibit "E", in favor of Lino Bangayan. By virtue of this Transfer Certificate of Title T-2567 was issued to Lino Bangayan on June 24, 1949, Exhibit "1":

Lots 4465 and 4467 were originally registered in the of Luis Herrera, married to Go Bang, under Original Certificate of Title No. 0-14360, Exhibit "5". On December 1, 1931, Luis Herrera sold one-half (½) undivided share and to Herrera and Go Bang, the other half (½), as shown

by Exhibit "12" and Exhibit "12-A", the latter an annotation made the Register of Deeds of the City of Zamboanga, in which stated as follows:

Cancelado el presente Certificado en virtud de una escritura de traspaso y en su lugar se ha expedido el Certificado de T No. 494-(T-13045) del Tomo 2 del Libro de Certificado de Transferencias.

(Fdo) R. D. MACROHON Registrador de Titulos Ciudad de Zamboanga

On July 23, 1937, Luis Herrera thru his attorney-in-fact Luy Kim Guan, one of the defendants, sold to Nicomedes Salazar his one half (½) participation in these two (2) lots, as shown in Exhibit "C", the corresponding deed of sale for P3,000.00 Transfer Certificate of Title No. T-494-(T-13045) was is to Nicomedes Salazar and to the defendant Luy Kim Guan, Exhibit '7'. On August 4, 1937, the defendant Luy Kim Guan Nicomedes Salazar executed a deed of mortgage in favor of Bank of the Philippine Islands to secure a loan of P3,500.00, Exhibit '6'. On August 17, 1937, the defendant Luy Kim Guan and Nicomedes Salazar sold Lot 4465 to Carlos Eijansantos for the sum of P100.00 as shown in Exhibit "9", the corresponding deed of sale, and Transfer Certificate of Title No. T-2653 was issued on September 7, 1939 to Carlos Eijansantos, Exhibit "10". Nicomedes Salazar sold his one half (½) interest on Lot 4467 to the defendant Lino Bangayan for P3,000.00 on February 22, 1949, Exhibit 'B', and the corresponding Transfer Certificate of Title T-2654 was issued to Lino Bangayan and to Luy Kim Guan, both are co-owners in equal shares, Exhibit "8". Opinion of the City Attorney, Exhibit "p", and an affidavit of Atty. Jose T. Atilano, Exhibit "O", state that Lino Bangayan is a Filipino citizen.

As admitted by both parties (plaintiffs and defendants), Luis Herrera is now deceased, but as to the specific and precise date of his death the evidence of both parties failed to show.

It is the contention of plaintiff-appellant that all the transactions mentioned in the preceding quoted portion of the decision were fraudulent and were executed after the death of Luis Herrera and, consequently, when the power of attorney was no longer operative. It is also claimed that the defendants Lino Bangayan and Luy Kim Guan who now claim to be the owners of Lots Nos. 1740 and 4467 are Chinese by nationality and, therefore, are disqualified to acquire real properties. Plaintiff-appellant, in addition, questions the supposed deed of sale allegedly executed by Luis Herrera on December 1, 1931 in favor of defendant Luy Kim Guan, conveying one-half interest on the two lots, Nos. 4465 and 4467, asserting that what was actually executed on that date, jointly with the general power of attorney, was a lease contract over the same properties for a period of 20 years for which Luy Kim Guan paid the sum of P2,000.00.

We find all the contentions of plaintiff-appellant untenable. Starting with her claim that the second deed executed on December 1, 1931 by Luis Herrera was a lease contract instead of a deed of sale as asserted by defendant Luy Kim Guan, we find that the only evidence in support of her contention is her own testimony and that of her husband to the effect that the deceased Luis Herrera showed the said document to them, and they remembered the same to be a lease contract on the three properties for a period of 20 years in consideration of P2,000.00. Their testimony was sought to be corroborated by the declaration of the clerk of Atty. Enrique A. Fernandez, who allegedly notarized the document. Outside of this oral testimony, given more than 23 years after the supposed instrument was read by them, no other evidence was adduced. On the other hand, defendant Luy Kim Gua produced in evidence a certification1 signed by the Register of Deeds of Dipolog, Zamboanga (Exh. 11) to the effect

that a deed of sale, dated December 1, 1931, was execute by Luis Herrera in favor of Luy Kim Guan and entered in the Primary Book No. 4 as duly registered on September 30, 1936 under Original Certificate of Title No. 14360. It is to be noted that the deed of sale was registered shortly after the issuance in the name of Luis Herrera of Origin Certificate of Title No. 14360 pursuant to Decree No. 59093, covering the two lots, Nos. 4465 and 4467 (Exh. 5) dated April 7, 1936. In virtue of said deed of sale of December 1, 1931, Original Certificate of Title No. 1436 was cancelled and Transfer Certificate of Title No. 1304 (Exh. 12) in the names of the conjugal partnership of the spouses Luis Herrera and Go Bang, one-half share, an Luy Kim Guan, single, one-half share, was issued on September 30, 1936. Later, or on July 23, 1937, Luy Kim Guan, in his capacity as attorney-in-fact of Luis Herrera, sold the half interest of the latter in the two parcels o land, in favor of Nicomedes Salazar, whereupon TCT No. 13045 was cancelled and TCT No. RT-657 (494-T-13045 (Exh. 7) was issued in the names of Luy Kim Guan an Nicomedes Salazar in undivided equal shares. On August 4, 1937, both Luy Kim Guan and Nicomedes Salazar mortgaged the two parcels in favor of the Bank of the Philippine Islands for the sum of P3,500.00 (Exh. 6). On August 17, 1937, Nicomedes Salazar and Luy Kim Gua sold their respective shares in Lot No. 4465 to Carlo Eijansantos (Exh. 9), subject to the mortgage, resulting in the issuance of TCT No. 2653 (Exh. 10) covering the entire lot No. 4465 in the name of said Carlos Eijansantos. On February 23, 1949, Nicomedes Salazar sold his shall share in Lot No. 4467 to Lino Bangayan, as a consequence of which, TCT No. 2654 (Exh. B) was issued covering said Lot No. 4467 in the names of Luy Kim Guan and Lino Bangayan in undivided equal shares.

With respect to Lot No. 1740, the same was sold by Luy Kim Guan, in his capacity as attorney-in-fact of Luis Herrera, on September 11, 1939 to Luy Chay (See Exh. 2) who, in August, 1941, mortgaged the same (Exh. 4) to the Zamboanga Mutual Loan and Building Association (See TCT No. 3162 [Exh. 3] issued in the name of Luy Chay). Later on, Luy Chay sold the entire lot to defendant Lino Bangayan by virtue of the deed of sale dated January 31, 1947 (Exh. E), and as a consequence thereof, TCT No. 2567 was issued in the name of said vendee. (See Exh. 1). As a result of these various transactions, duly recorded in the corresponding office of the Register of Deeds, and covered by appropriate transfer certificates of title, the properties are now registered in the following manner: Lot No. 1740, in the name of Lino Bangayan; Lot No. 4465, in the name of Carlos Eijansantos; and Lot No. 4467, in the names of Lino Bangayan and Luy Kim Guan in undivided equal shares.

In the face of these documentary evidence presented by the defendants, the trial court correctly upheld the contention of the defendants as against that of plaintiff-appellant who claims that the second deed executed by Luis Herrera in 1931 was a lease contract. It is pertinent to note what the lower court stated in this regard, that is, if the second deed executed by Luis Herrera was a lease contract covering, the 3 lots in question for a period of twenty (20) years, there would have been no purpose for him to constitute Luy Kim Guan as. his attorney-in-fact to administer and take charge of the same properties already covered by the lease contract.

Coming now to the contention that these transactions are null and void and of no effect because they were executed by the attorney-in-fact after the death of his Principal, suffice it to say that as found by the lower court, the date of death of Luis Herrera has not been satisfactorily proven. The only evidence presented by the Plaintiff-appellant in this respect is a supposed letter received from a certain "Candi", dated at Amoy in November, 1936, purporting to give information that Luis Herrera (without mentioning his name) had died in August of that year. This piece of evidence was properly rejected by the lower court for lack of identification. the other hand, we have the testimony of the witness Chung Lian to the effect that when he was in Amoy the year 1940, Luis Herrera visited him and had a conversation with him, showing that the latter was still alive at the time. Since the documents had been executed the attorney-in-fact one in 1937 and the other in 1939, it is evident, if we are to believe this testimony, that the documents were executed during the lifetime of the principal. Be that as it may, even granting arguendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication in the record, that the age Luy Kim Guan was aware of the death of his prince at the time

he sold the property. The death of the principal does not render the act of an agent unenforceable, where the latter had no knowledge of such extinguishment the agency.2

Appellants also raise the question of the legality of the titles acquired by Luy Chay and Lino Bangayan, on ground that they are disqualified to acquire real properties in the Philippines. This point is similarly without me because there is no evidence to support the claim. In fact, in the deed of sale as well as in TCT No. 3162 issued to Luy Chay, the latter was referred to as a citizen of the Philippines. Nevertheless, the lower court acknowledged the probability that Luy Chay could have been actually a Chinese citizens.3 At any rate, the property was subsequently purchased by Lino Bangayan, as a result which TCT No. 3162 in the name of Luy Chay was cancelled and another certificate (TCT No. T-2567) was issued in favor of said vendee.

As to Bangayan's qualification, the lower court held that said defendant had sufficiently established his Philippine citizenship through Exhibit P, concurred in by the Secretary of Justice. We find no reason to disturb such ruling.

With respect to Luy Kim Guan, while it is true that he is a Chinese citizen, nevertheless, inasmuch as he acquired his one-half share in Lot No. 4467 in 1931, long before the Constitution was adopted, his ownership can not be attacked on account of his citizenship.

Appellants, in this appeal, contest the judgment of the court a quo awarding defendants Lino Bangayan and Luy Kim Guan attorney's fees in the sum of P2,000.00 each, and expenses of litigation in the amounts of P1,000.00 and P500.00, respectively. We agree with the appellant in this regard.

This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to amount to gross and evident bad faith.4 The same thing however, can not be said of the case at bar. As a matter of fact, the trial court itself declared that the complaint was filed in good faith. Attorney's fees, therefore, can not be awarded to defendants simply because the judgment was favorable to them and adverse to plaintiff, for it may amount to imposing a premium on the right to redress grievances in court. And so with expenses of litigation. A winning party may be entitled to expenses of litigation only where he, by reason of plaintiff's clearly unjustifiable claims or defendant's unreasonable refusal to his demands, was compelled to incur said expenditures. Evidently, the facts of this case do not warrant the granting of such litigation expenses to defendants. In the absence of proof that the action was intended for reasons other than honest, we may agree with the trial court that the same must have been instituted by plaintiffs in their belief that they have a valid cause against the defendants.

WHEREFORE, and with the above modification, the decision appealed from is hereby affirmed in all other respects without prejudice to appellants' right to demand from the agent (Luy Kim Guan) an accounting of proceeds of the agency, if such right is still available. No costs. So ordered.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-10881 September 30, 1958

EULOGIO DEL ROSARIO, AURELIO DEL ROSARIO, BENITO DEL ROSARIO, BERNARDO DEL ROSARIO, ISIDRA DEL ROSARIO, DOMINGA DEL ROSARIO and CONCEPCION BORROMEO, plaintiff-appellees, vs. PRIMITIVO ABAD and TEODORICO ABAD, defendants-appellants.

Baustita and Bautista for appellees. Agustin C. Bagasao for appellants.

PADILLA, J.:

Appeal from a judgment rendered by the Court of First Instance of Nueva Ecija in civil case No. 1084.

The facts are undisputed, the parties having entered into an agreed statement thereof, the pertinent and materials part of which are: The plaintiffs are the children and heirs of the late Tiburcio del Rosario. On 12 December 1936, the Secretary of Agriculture and Commerce, by authority of the President of the Commonwealth of the Philippines, issued under the provisions of the Public Land Act (Act No. 2874) homestead patent No. 40596 to Tiburcio del Rosario. The homestead with an area of 9 hectares, 43 ares and 14 centares is situated in barrio San Mauricio, municipality of San Jose, province of Nueva Ecija. On 11 February 1937, the Registrar of Deeds in and for the province of Nueva Ecija issued original certificate of title No. 4820 in the name of the homesteader (Annex A, stipulation of facts, pp. 25-30, Rec. on App.). On 24 February 1937, Tiburcio del Rosario obtained a loan from Primitivo Abad in the sum of P2,000 with interest at the rate of 12% per annum, payable on 31 December 1941. As security for the payment thereof he mortgaged the improvements of the parcel of land in favor of the creditor (Annex B, complaint, pp. 10-13, Rec. on App.). On the same day, 24 February, the mortgagor executed an "irrevocable special power of attorney coupled with interest" in favor of the mortgagee, authorizing him, among others, to sell and convey the parcel of land (Annex A, complaint, pp. 7-9, Rec. on App.). Thereafter the mortgagor and his family moved to Santiago, Isabela, and there established a new residence. Sometime in December 1945 the mortgagor died leaving the mortgage debt unpaid. On 9 June 1947, Primitivo Abad, acting as attorney-in-fact of Tiburcio del Rosario, sold the parcel of land to his son Teodorico Abad for and in consideration of the token sum of P1.00 and the payment by the vendee of the mortgage debt of Tiburcio del Rosario to Primitivo Abad (Annex C, complaint, pp. 13-16, Rec. on App.). The vendee took possession of the parcel of land. Upon the filing and registration of the last deed of sale, the Registrar of Deeds in and for the province of Nueva Ecija cancelled original certificate of title No. 4820 in the name of Tiburcio del Rosario and in lieu thereof issued transfer certificate of title No. 1882 in favor of the vendee Teodorico Abad.

On 29 December 1952 the plaintiffs brought suit against the defendants to recover possession and ownership of the parcel of land, damages, attorney's fees and costs. The defendants answered the complaint and prayed for the dismissal thereof, damages, attorney's fees and costs.

On 25 October 1954, after the parties had submitted the case upon a stipulation of facts, the Court rendered judgment, the dispositive part of which is:

WHEREFORE, the deed of sale executed by Primitivo Abad in favor of Teodorica Abad, Annex C, is hereby declared null and void; and Teodorico Abad is hereby ordered to execute a deed of reconveyance of the land originally with OCT No. 4820, now covered by Transfer Certificate of Title No. 1880, in favor of the plaintiffs. No pronouncement as to costs.

The defendants appealed to the Court of Appeals, which certified the case to this Court as no question of fact is involved.

Section 116 of the Public Land Act (Act No. 2874), under which the homestead was granted to the appellees' father, provides:

Lands acquired under the free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of the issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period; but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations.

The encumbrance or alienation of lands acquired by free patent or homestead in violation of this section is null and void.1

There is no question that the mortgage on the improvements of the parcel of land executed by Tiburcio del Rosario in favor of Primitivo Abad (Annex B, complaint, pp. 10-13, Rec. on App.) is valid.

The power of attorney executed by Tiburcio del Rosario in favor of Primitivo Abad (Annex A, complaint, pp. 7-9, Rec. on App.) providing, among others, that is coupled with an interest in the subject matter thereof in favor of the said attorney and are therefore irrevocable, and . . . conferring upon my said attorney full and ample power and authority to do and perform all things reasonably necessary and proper for the due carrying out of the said powers according to the true tenor and purport of the same, . . ." does not create an agency coupled with an interest nor does it clothe the agency with an irrevocable character. A mere statement in the power of attorney that it is coupled with an interest is not enough. In what does such interest consist must be stated in the power of attorney. The fact that Tiburcio del Rosario, the principal, had mortgaged the improvements of the parcel of land to Primitivo Abad, the agent, (Annex B, complaint, pp. 10-13, Rec. on App.) is not such an interest as could render irrevocable the power of attorney executed by the principal in favor of the agent. In fact no mention of it is made in the power of attorney. The mortgage on the improvements of the parcel of land has nothing to do with the power of attorney and may be foreclosed by the mortgagee upon failure of the mortgagor to comply with his obligation. As the agency was not coupled with an interest, it was terminated upon the death of Tiburcio del Rosario, the principal, sometime in December 1945, and Primitivo Abad, the agent, could no longer validly convey the parcel of land to Teodorico Abad on 9 June 1947. The sale, therefore, to the later was null and void. But granting that the irrevocable power of attorney was lawful and valid it would subject the parcel of land to an encumbrance. As the homestead patent was issued on 12 December 1936 and the power of attorney was executed on 24 February 1937, it was in violation of the law that prohibits the alienation or encumbrance of land acquired by homestead from the date of the approval of the application and for a term of five years from and after the issuance of the patent or grant. Appellants contend that the power of attorney was to be availed of by the agent after the lapse of the prohibition period of five years, and that in fact Primitivo Abad sold the parcel of land on 9 June 1947, after the lapse of such period. Nothing to that effect is found in the power of attorney.

Appellants claim that the trial court should have directed the appellees to reimburse Teodorico Abad for what he had paid to Primitivo Abad to discharge the mortgage in the latter's favor as part of the

consideration of the sale. As the sale to Teodorico Abad is null and void, the appellees can not be compelled to reimburse Teodorico Abad for what he had paid to Primitivo Abad. The former's right of action is against the latter, without prejudice to the right of Primitive Abad to foreclose the mortgage on the improvements of the parcel of land if the mortgage debt is not paid by the appellees, as heirs and successors-in-interest of the mortgagor.

The judgment appealed from is affirmed, with costs against the appellants.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-21616 December 11, 1967

GERTRUDES F. CUAYCONG, ET AL., plaintiffs-appellants, vs. LUIS D. CUAYCONG, ET AL., defendants-appellees.

Benito C. Jalandoni and M. S. Gomez for plaintiffs-appellants. Hilado and Hilado for defendants-appellees.

BENGZON, J.P., J.:

Eduardo Cuaycong, married to Clotilde de Leon, died on June 21, 1936 without issue but with three brothers and a sister surviving him: Lino, Justo, Meliton and Basilisa. Upon his death, his properties were distributed to his heirs as he willed except two haciendas in Victorias, Negros Occidental, devoted to sugar and other crops — the Haciendas Sta. Cruz and Pusod both known as Hacienda Bacayan. Hacienda Bacayan is comprised of eight (8) lots — No. 28, covered by T.C.T. No. T-22130; Nos. 8, 17, 18 & 135, covered by T.C.T. No. T-22131; Nos. 21, 22, 23, covered by T.C.T. No. 22132 — all of which are titled in the name of Luis D. Cuaycong, son of Justo Cuaycong.

Lino Cuaycong died on May 4, 1937 and was survived by his children Paz, Carolina, Gertrudes, Carmen, Virgilio, Benjamin, Praxedes and Anastacio. Praxedes Cuaycong, married to Jose Betia, is already deceased and is survived by her children Jose Jr., Jesus, Mildred, Nenita and Nilo, all surnamed Betia. Anastacio Cuaycong, also deceased, is survived by his children Ester, Armando, Lourdes, Luis T., Eva and Aida, all surnamed Cuaycong.

Meliton and Basilisa died without any issue.

On October 3, 1961, the surviving children of Lino Cuaycong: Gertrudes, Carmen, Paz, Carolina, Virgilio; the surviving children of Anastacio: Ester, Armando, Lourdes, Luis T., Eva and Aida; as well as Jose, Jr., Jesus, Mildred, Nenita, Nilo, all surnamed Betia, children of deceased Praxedes Cuaycong Betia, filed as pauper litigants, a suit against Justo, Luis and Benjamin Cuaycong1 for conveyance of inheritance and accounting, before the Court of First Instance of Negros Occidental (Civil Case No. 6314), alleging among others that:

1. Eduardo Cuaycong had on several occasions, made known to his brothers and sisters that he and his wife Clotilde de Leon (died in 1940) had an understanding and made arrangements with Luis Cuaycong and his father Justo Cuaycong, that it was their desire to divide Haciendas Sta. Cruz and Pusod among his brothers and sister and his wife Clotilde.

2. With the consent of his wife, Eduardo had asked his brothers and sister to pay his wife P75,000 (the haciendas were worth P150,000) and then divide equally the remaining one-half share of Eduardo.

3. The brothers and sister failed to pay the 1/2 share of Clotilde over the two haciendas which were later acquired by Luis Cuaycong thru clever strategy, fraud, misrepresentation and in disregard of Eduardo's wishes by causing the issuance in his name of certificates of title covering said properties.

4. As the two haciendas were the subject of transactions between the spouses and Justo and Luis Cuaycong, Eduardo told Justo and Luis, and the two agreed, to hold in trust what might belong to his brothers and sister as a result of the arrangements and deliver to them their share when the proper time comes.

5. That as far back as 1936 Lino demanded from Justo and Luis his share and especially after Eduardo's and Clotilde's death, the plaintiffs demanded their shares.

6. That their demands had been refused and in 1960 during the estate proceedings of Praxedes Escalon, deceased wife of Luis D. Cuaycong, the latter fraudulently made it appear that the plaintiffs had nothing to do with the land; that Luis Cuaycong had possessed the lands since June 21, 1936 from which time he should be made to account for the plaintiffs' share; and that P1,500 attorney's fees should be paid in their favor.

Luis D. Cuaycong on October 20, 1961 moved to dismiss the complaint on the grounds of unenforceability of the claim under the statute of frauds, no cause of action (Rule 8, Sec. 1 [f] of the Rules of Court), and bar of causes of action by the statute of limitations (Rule 8, Sec. 1[e]). Subsequently, opposition thereto, answer and reply were filed; the plaintiffs also sought to have Benjamin Cuaycong declared in default for his failure to answer.

On December 16, 1961, the Court of First Instance ruled that the trust alleged, particularly in paragraph 8 of the complaint, refers to an immovable which under Article 1443 of the Civil Code may not be proved by parole evidence. Plaintiffs were given 10 days to file an amended complaint mentioning or alleging therein the written evidence of the alleged trust, otherwise the case would be dismissed.

Later, on December 23, 1961, the court decreed that since there was no amended complaint filed, thus, no enforceable claim, it was useless to declare Benjamin Cuaycong in default.

Plaintiff thereafter manifested that the claim is based on an implied trust as shown by paragraph 8 of the complaint. They added that there being no written instrument of trust, they could not amend the complaint to include such instrument.

On January 13, 1962, the court dismissed the case for failure to amend the complaint; it further refused to reconsider its order denying the motion to declare Benjamin Cuaycong in default, stating that such a default declaration would be of no purpose.

Failing in their efforts to have the dismissal reconsidered, plaintiffs appealed to Us. The resolution of the appeal hinges on whether the trust is express or implied.

Paragraph 8 of the complaint state:

That as the said two haciendas were then the subject of certain transactions between the spouses Eduardo Cuaycong and Clotilde de Leon on one hand, and Justo and Luis D. Cuaycong on the other, Eduardo Cuaycong told his brother Justo and his nephew, defendant Luis D. Cuaycong, to hold in trust what might belong to his brothers and sister as a result of the arrangements and to deliver to them their shares when the proper time comes, to which Justo and Luis D. Cuaycong agreed.

The plaintiffs claim that an inplied trust is referred to in the complaint which, under Article 1457 of the Civil Code, may be proved by parole evidence.

Our Civil Code defines an express trust as one created by the intention of the trustor or of the parties, and an implied trust as one that comes into being by operation of law.2 Express trusts are those created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. On the other hand, implied trusts are those which, without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, in dependently of the particular intention of the parties.3Thus, if the intention to establish a trust is clear, the trust is express; if the intent to establish a trust is to be taken from circumstances or other matters indicative of such intent, then the trust is implied. From these and from the provisions of paragraph 8 of the complaint itself, We find it clear that the plaintiffs alleged an express trust over an immovable, especially since it is alleged that the trustor expressly told the defendants of his intention to establish the trust.law phil Such a situation definitely falls under Article 1443 of the Civil Code.

Appellants point out that not only paragraph 8 should be considered but the whole complaint, in which case they argue that an implied trust should be construed to exist. Article 1453, one of the cases of implied trust, is also cited: "When property is conveyed to a person in reliance upon his declared intentions to hold it for or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated." Said arguments are untenable, even considering the whole complaint. The intention of the trustor to establish the alleged trust may be seen in paragraphs 5 and 6.4 Article 1453 would apply if the person conveying the property did not expressly state that he was establishing the trust, unlike the case at bar where he was alleged to have expressed such intent. Consequently, the lower court did not err in dismissing the complaint.

Besides, even assuming the alleged trust to be an implied one, the right alleged by plaintiffs Would have already prescribed since starting in 1936 When the trustor died, plaintiffs had already been allegedly refused by the aforesaid defendants in their demands over the land, and the complaint was filed only in 1961 — more than the 10-year period of prescription for the enforcement of such rights under the trust.lawphil It is settled that the right to enforce an implied trust in one's favor prescribes in ten (10) years.5 And even under the Code of Civil Procedure, action to recover real property such as lands prescribes in ten years (Sec. 40, Act 190).

And for the above reasons, We agree that it was pointless to declare Benjamin Cuaycong in default, considering that without a written instrument as evidence of the alleged trust, the case for the plaintiffs must be dismissed.

WHEREFORE, the order of dismissal of the lower court appealed from is hereby affirmed, without costs. So ordered.

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-20449 January 29, 1968

ESPERANZA FABIAN, BENITA FABIAN and DAMASO PAPA Y FABIAN, plaintiffs-appellants, vs. SILBINA FABIAN, FELICIANO LANDRITO, TEODORA FABIAN and FRANCISCO DEL MONTE, defendants-appellees.

Felix Law Office for plaintiffs-appellants. J.G. Mendoza for defendants-appellees.

CASTRO, J.:

Before us is the appeal taken by Esperanza Fabian, Benita I Fabian and Damaso Papa y Fabian from the decision of the Court of First Instance of Rizal which dismissed their complaint for reconveyance, in civil case 295-R, filed against the defendants spouses Silbina Fabian and Feliciano Landrito and Teodora Fabian and Francisco del Monte, upon the ground that the latter had acquired a valid and complete title to the land in question by acquisitive prescription.

This case traces its origin way back to January 1, 1909 when Pablo Fabian bought from the Philippine Government lot 164 of the Friar Lands Estate in Muntinlupa, Rizal, of an area 1 hectare, 42 ares and 80 centares, for the sum of P112 payable in installments. By virtue of this purchase, he was issued sale certificate 547. He died on August 2, 1928, survived by four children, namely, Esperanza, Benita I, Benita II, 1 and Silbina.

On October 5, 1928 Silbina Fabian and Teodora Fabian, niece of the deceased, executed an affidavit, reciting, among other things,

Que el finado Pablo Fabian, no dejo ningun otro heredero sino los declarantes, con derecho a heredar el lote No. 164 de la hacienda Muntinlupa, relicto por dicho finado Pablo Fabian y para la aprobacion de traspaso a nosotros el referido lote No. 164, prestamos esta declaracion para todos los efectos que pueden covenir a la Oficina de Terenos a defender por nuestro mayor derecho de heredar dicho lote contra las reclamaciones juntas de quien las presentare.

On the strength of this affidavit, sale certificate 547 was assigned to them. On November 14, 1928 the acting Director of Lands, on behalf of the Government, sold lot 164, under deed 17272, to Silbina Fabian, married to Feliciano Landrito, and to Teodora Fabian, married to Francisco del Monte, for the sum of P120. The vendees spouses forthwith in 1929 took physical possession thereof, cultivated it, and appropriated the produce therefrom (and concededly have up to the present been appropriating the fruits from the land exclusively for themselves). In that same year, they declared the lot in their names for taxation purposes under tax declaration 3374. This tax declaration was later cancelled, and in lieu thereof two tax declarations (2418 and 2419) were issued in favor of Teodora Fabian and Silbina Fabian, respectively. Since 1929 up to the present, they have been paying the real estate taxes thereon. In 1937 the Register of Deeds of Rizal issued TCT 33203 over lot 164 in their names. And on May 4, 1945, they subdivided the lot into two equal parts; TCT 33203 was then cancelled and TCT 38095 was issued over lot 164-A in the name of Silbina Fabian, married to Feliciano Landrito, and 38096 was issued over lot 164-B in the name of Teodora Fabian, married to Francisco del Monte.

On July 18, 1960 the plaintiffs filed the present action for reconveyance against the defendants spouses, averring that Silbina and Teodora, through fraud perpetrated in their affidavit aforesaid, made it appear that "el finado Pablo Fabian no dejo ningun otro heredero sino los declarantes con derecho a heredar el lote No. 164 de la hacienda de Muntinlupa", which is a false narration of facts because Silbina knew that she is not the only daughter and heir of the deceased Pablo Fabian, and Teodora likewise knew all along that, as a mere niece of the deceased, she was precluded from inheriting from him in the presence of his four surviving daughters; that by virtue of this affidavit, the said defendants succeeded in having sale certificate 547 assigned to them and thereafter in having lot 164 covered by said certificate transferred in their names; and that by virtue also of these assignment and transfer, the defendants succeeded fraudulently in having lot 164 registered in their names under TCT 33203. They further allege that the land has not been transferred to an innocent purchaser for value. A reconveyance thereof is prayed for, aside from P3,000 attorney's fees and costs.

In their answer of August 31, 1960, 2 the defendants spouses claim that Pablo Fabian was not the owner of lot 164 at the time of his death on August 2, 1928 because he had not paid in full the amortizations on the lot; that they are the absolute owners thereof, having purchased it from the Government for the sum of P120, and from that year having exercised all the attributes of ownership thereof up to the present; and that the present action for reconveyance has already prescribed. The dismissal of the complaint is prayed for.

On the basis of a partial stipulation of facts together with annexes, the lower court rendered judgment on June 28, 1962, declaring that the defendants spouses had acquired a valid and complete title to the property by acquisitive prescription, and accordingly dismissed the complaint, with costs against the plaintiffs. The latter's motion for reconsideration was thereafter denied.

Hence, the present recourse.

The three resulting issues of law tendered for resolution in this appeal, by the formulation of the parties are: (1) Was Pablo Fabian the owner of lot 164 at the time of his death, in the face of the fact, admitted by the defendants-appellees, that he had not then paid the entire purchase price thereof? (2) May laches constitute a bar to an action to enforce a constructive trust? (3) Has title to the land vested in the appellees through the mode of acquisitive prescription?

1. Lot 164 was a part of the Friar Lands Estate of Muntinlupa, Rizal; its sale to Pablo Fabian was therefore governed by Act 1120, otherwise known as the Friar Lands Act. While under section 15 of the said Act, title to the land sold is reserved to the Government until the purchaser makes full payment of all the required installments and the interest thereon, this legal reservation refers.

to the bare, naked title. The equitable and beneficial title really went to the purchaser the moment he paid the first installment and was given a certificate of sale. The reservation of the title in favor of the Government is made merely to protect the interest of the Government so as to preclude or prevent the purchaser from encumbering or disposing of the lot purchased before the payment in full of the purchase price. Outside of this protection the Government retains no right as an owner. For instance, after issuance of the sales certificate and pending payment in full of the purchase price, the Government may not sell the lot to another. It may not even encumber it. It may not occupy the land to use or cultivate; neither may it lease it or even participate or share in its fruits. In other words, the Government does not and cannot exercise the rights and prerogatives of owner. And when said purchaser finally pays the final installment on the purchase price and is given a deed of conveyance and a certificate of title, the title at least in equity, retroacts to the time he first occupied the land, paid the first installment and was issued the corresponding certificate of sale. In other words, pending the

completion of the payment of the purchase price, the purchaser is entitled to all the benefits and advantages which may accrue to the land as well as suffer the losses that may befall it. 3

That Pablo Fabian had paid five annual installments to the Government, and in fact been issued sale certificate 547 in his name, are conceded. He was therefore the owner of lot 164 at the time of his death. He left four daughters, namely, Esperanza, Benita I, Benita II and Silbina to whom all his rights and interest over lot 164 passed upon his demise.

In case a holder of a certificate dies before the giving of the deed and does not leave a widow, then the interest of the holder of the certificate shall descend and deed shall issue to the person who under the laws of the Philippine Islands would have taken had the title been perfected before the death of the holder of the certificate, upon proof of the holders thus entitled of compliance with all the requirements of the certificate. 4

The assignment and sale of the lot to the defendants. Silbina and Teodora were therefore null and void as to that portion sold to Teodora, and as well as to that portion which lawfully devolved in favor of the appellants. To the extent of the participation of the appellants, application must be made of the principle that if property is acquired through fraud, the person obtaining it is considered a trustee of an implied trust for the benefit of the person from whom the property comes (Gayondato vs. Insular Treasurer, 49 Phil. 244).

2. In Diaz, et al. vs. Gorricho, et al., 103 Phil. 264-265 (1958), this Court, speaking through Mr. Justice J.B.L. Reyes, declared in no uncertain terms that laches may bar an action brought to enforce a constructive trust such as the one in the case at bar. Illuminating are the following excerpts from the decision penned by Mr. Justice Reyes:

Article 1456 of the new Civil Code, while not retroactive in character, merely expresses a rule already recognized by our courts prior to the Code's promulgation (see Gayondato vs. Insular Treasurer, 49 Phil. 244). Appellants are, however, in error in believing that like express trust, such constructive trusts may not be barred by lapse of time. The American law on trusts has always maintained a distinction between express trusts created by the intention of the parties, and the implied or constructive trusts that are exclusively created by law, the latter not being trusts in their technical sense (Gayondato vs. Insular Treasurer, supra). The express trusts disable the trustee from acquiring for his own benefit the property committed to his management or custody, at least while he does not openly repudiate the trust, and makes such repudiation known to the beneficiary or cestui que trust. For this reason, the old Code of Civil Procedure (Act 190) declared that the rules on adverse possession does not apply to "continuing and subsisting" (i.e., unrepudiated) trusts.

But in constructive trusts, . . . the rule is that laches constitutes a bar to actions to enforce the trust, and repudiation is not required, unless there is a concealment of the facts giving rise to the trust (54 Am. Jur., secs. 580, 581; 65 C.J., secs. 956, 957; Amer. Law Institute, Restatement of Trusts, section 219; on Restitution, section 179; Stianson vs. Stianson 6 ALR 287; Claridad vs. Benares, 97 Phil. 973.

The assignment of sale certificate 547 was effected on October 5, 1928; and the actual transfer of lot 164 was made on the following November 14. It was only on July 8, 1960, 32 big years later, that the appellants for the first time came forward with their claim to the land. The record does not reveal, and it is not seriously asserted, that the appellees concealed the facts giving rise to the trust. Upon the contrary, paragraph 13 of the stipulation of facts of the parties states with striking clarity "that defendants herein have been in possession of the land in question since 1928 up to the present

publicly and continuously under claim of ownership; they have cultivated it, harvested and appropriated the fruits for themselves." (emphasis supplied.)

3. Six years later, in Gerona, et al. vs. De Guzman, et al., L-19060, May 29, 1964, the factual setting attending which is substantially similar to that obtaining in the case at bar, this Court, in an excellently-phrased decision penned by Chief Justice, then Associate Justice, Roberto Concepcion, unequivocally reaffirmed the rule, overruling previous decisions to the contrary, that "an action for reconveyance of real property based upon a constructive or implied trust, resulting from fraud, may be barred by the statute of limitations," and further that "the action therefor may be filed within four years from the discovery of the fraud," the discovery in that case being deemed to have taken place when new certificates of title were issued exclusively in the names of the respondents therein. The following is what Justice Concepcion, speaking for the Court, said:

[A]lthough, as a general rule, an action for partition among co-heirs does not prescribe, this is true only as long as the defendants do not hold the property in question under an adverse title (Cordova vs. Cordova, L-9936, January 14, 1948). The statute of limitations operates, as in other cases, from the moment such adverse title is asserted by the possessor of the property (Ramos v. Ramos, 45 Phil., 362; Bargayo v. Camumot, 40 Phil., 857; Castro v. Echarri, 20 Phil., 23).

When respondents executed the aforementioned deed of extra-judicial settlement stating therein that they are the sole heirs of the late Marcelo de Guzman, and secured new transfer certificates of title in their own name, they thereby excluded the petitioners from the estate of the deceased, and consequently, set up a title adverse to them. And this is why petitioners have brought this action for the annulment of said deed upon the ground that the same is tainted with fraud.

Although, there are some decisions to the contrary (Jacinto v. Mendoza, L-12540, February 28, 1959; Cuison v. Fernandez, L-11764, January 31, 1959; Marabiles v. Quito, L-10408, October 18, 1956 and Sevilla v. De los Angeles, L-7745, November 18, 1955), it is already settled in this jurisdiction that an action for reconveyance of real property based upon a constructive or implied trusts, resulting from fraud, may be barred by the statute of limitations (Candelaria vs. Romero, L-12149, September 30, 1960; Alzona v. Capunita, L-10220, February 28, 1962).

Inasmuch as petitioners seek to annul the aforementioned deed of "extra-judicial settlement" upon the ground of fraud in the execution thereof, the action therefor may be filed within four (4) years from the discovery of the fraud (Mauricio v. Villanueva, L-11072, September 24, 1959). Such discovery is deemed to have taken place, in the case at bar, on June 25, 1948, when said instrument was filed with the Register of Deeds and new certificates of title in the name of the respondents exclusively, for the registration of the deed of extra-judicial settlement constitutes constructive notice to the whole world (Diaz v. Gorricho, L-11229, March 29, 1958; Avecilla v. Yatco, L-11578, May 14, 1958; J. M. Tuason & Co., Inc. v. Magdangal, L-15539, January 30, 1962; Lopez v. Gonzaga, L-18788, January 31, 1964). (Emphasis supplied.)

Upon the undisputed facts in the case at bar, not only had laches set in when the appellants instituted their action for, reconveyance in 1960, but as well their right to enforce the constructive trust had already prescribed. 5

It logically follows from the above disquisition that acquisitive prescription has likewise operated to vest absolute title in the appellees, pursuant to the provisions of section 41 of Act 190 that

Ten years actual adverse possession by any person claiming to be the owner for that time of any land or interest in land, uninterruptedly continued for ten years by occupancy, descent, grants, or otherwise, in whatever way such occupancy may have commenced or continued, 6shall vest in every actual occupant or possessor of such land a full and complete title. . . . (Emphasis ours.)

The stringent mandate of said section 41 that "the possession by the claimant or by the person under or through whom he claims must have been actual, open, public, continuous under a claim of title exclusive of any other right and adverse to all other claimants," was adjudged by the lower court as having been fulfilled in the case at hand. And we agree. Although paragraph 13 of the stipulation of facts hereinbefore adverted to does not explicitly employ the word "adverse" to characterize the possession of the defendants from 1928 up to the filing of the complaint in 1960, the words, "defendants have been in possession of the land since 1928 up to the present [1960] publicly and continuously under claim of ownership; they have cultivated it, harvested and appropriated the fruits for themselves," clearly delineate, and can have no other logical meaning than, the adverse character of the possession exercised by the appellees over the land. If the import of the abovequoted portion of the stipulation of facts is at all doubted, such doubt is dispelled completely by additional cumulative facts in the record which are uncontroverted. Thus, the appellees declared the lot for taxation purposes in their names, and the resulting tax declaration was later concelled and two tax declarations were issued in favor of Silbina Fabian and Teodora Fabian, respectively. They have been paying the real estate taxes thereon from 1929 to the present. And in 1945 they subdivided the lot into two equal parts, and two transfer certificates of title were issued separately in their names.

Upon the foregoing disquisition, we hold not only that the appellants' action to enforce the constructive trust created in their favor has prescribed, but as well that a valid, full and complete title has vested in the appellees by acquisitive prescription.1äw phï1.ñët

ACCORDINGLY, the judgment a quo, dismissing the complaint, is affirmed. No pronouncement as to costs.

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-38018 October 31, 1978

MARCELO SOTTO, Administrator of the Estate of Filemon Sotto, petitioner, vs. PILAR TEVES, FLORENTINO TEVES, DULCE TEVES KIAMKO assisted by husband FELIPE KIAMKO DOLORES TEVES ARCENAS, assisted by husband MARIANO ARCENAS, MARIA CAMARA GUMBAN, assisted by husband NICANOR GUMBAN, BELEN CAMARA BROWN, assisted by husband ROGER BROWN and the HONORABLE COURT OF APPEALS, respondents.

Delfin V Nacua, Jose D. Palma, Nicolas Jumapao & Pedro Albino and San Juan, Africa Gonzales & San Agustin for petitioner.

Teodoro Almase and Filiberto Leonardo for respondents.

GUERRERO, J.:

This is a petition for review on certiorari of the Resolution of the Court of Appeals, Special Division of Five 1 dated Sept. 14, 1973 in CA-G.R. No. 44351 R which reconsidered the decision of the Eight Division 2,

same Court dated November 25, 1972 and from the Resolution dated December 13, 1973 of the said Special Division of Five, denying the motion for reconsideration of the previous Resolution. The dispositive portion of the appealed Resolution states:

WHEREFORE, the decision rendered in the above-entitled case is hereby reconsidered. The appealed judgment is hereby reversed and set aside. Plaintiffs are hereby declared the absolute owners of Lots Nos. 7547, 842, 2179-A, 123 and 1370. Reconveyance and delivery of possession of the aforesaid five lots to plaintiffs are hereby ordered. Defendant is hereby sentenced to pay plaintiffs the sum corresponding to P4,500.00 a month from October 10, 1966 until the reconveyance and delivery of possession as above ordered have been effected, with legal interest thereon from said date until fully paid, and the sum of P5,000.00 as and for attorney's fees, with costs of both instances against the defendant. 3

The voluminous records and pleadings in this case establish the following undisputed facts which are stated in the appealed Resolution of the Special Division of Five dated Sept. 14, 1973, as follows:

Subject of the plaintiffs' action for declaration of ownership and/or reconveyance, and for the recovery of possession, rentals, damages and attorney's fees, are five (5) parcels of land, all located in Cebu City, more particularly described in the complaint, and denominated as Lots Nos. 7547, 842, 2179-A, 123, and 1370. There is no dispute as to the fact that the aforesaid properties originally belonged to the conjugal partnership of the spouses Florentino Rallos and Maria Fadullon. When Florentino Rallos died on March 14, 1912 in the City of Cebu, the parcels of land in question, together with the other properties comprising the estate of the deceased, descended

in testate succession to his sole heirs, his widow, Maria Fadullon, and two children, named Concepcion Rallos and Carmen Rallos. The lawyer to whom the Rallos heirs entrusted the settlement of the estate was Atty. Filemon Sotto.

Shortly after the closure of the probate proceeding in 1913, Atty. Sotto married Carmen Rallos. Carmen died in 1945 without leaving any issue. Concepcion died later leaving many children. Maria Fadullon predeceased her two daughters. Atty. Sotto died intestate on October 10, 1966.

Competing for the ownership of the five lots are the direct descendants and blood relatives of Florentino Rallos and Maria Fadullon, opposed by the administrator of the intestate estate of Atty. Sotto. The children of Concepcion Rallos, or the grandchildren of Florentino Rallos and Maria Fadullon, some of whom are assisted by their spouses, are the plaintiffs in this case. Defendant administrator represents Atty. Sotto's children out of wedlock. It is claimed by the defendant that Atty. Sotto was at the time of his death the owner of the five lots in question.

In life, Atty. Filemon Sotto was a very prestigious man. He wielded tremendous social and political influence. Successively, he was municipal councilor, vice-president of Cebu City, Assemblyman, Senator and Delegate to the Constitutional Convention of 1934. He was editor and publisher of many newspapers among which was the famous "La Revolucion" which featured quite prominently in the celebrated Wood-Sotto libel case. When his life, however, was almost at an end, he was declared incompetent. In 1962, while Atty. Sotto was under guardianship, Cesar Sotto, his nephew and protegee and one of the guardians judicially appointed to take care of his estate, delivered to Pilar Teves, one of the herein plaintiffs, certain documents which had lain in secrecy in the private files of Atty. Sotto. All along, the direct descendants and blood relatives of Florentino Rallos had rested on the belief that the properties in question, which are the fruits of the sweat and toil of their grandfather, would one day be delivered unto them. The revelation of Cesar Sotto, however, led the plaintiffs to the discovery that all the properties in question were now titled in the name of Atty. Sotto. and were in danger of falling into the hands of his children out of wedlock, who are total strangers to the spouses Rallos and Fadullon. Upon such discovery, the plaintiffs initiated the present lawsuit forthwith."

On June 13, 1967, the herein private respondents filed suit in the Court of First Instance of Cebu against petitioner Marcelo Sotto, as administrator of the intestate estate of Filemon Sotto, for the recovery of possession and ownership of the 5 parcels of land described in the complaint, with damages. The complaint was based mainly upon the theory that a trust relation was established and created with respect to the said properties, with Atty. Filemon Sotto as trustee and as cestuis que trust, his mother-in-law, Maria Fadullon Vda. de Rallos; his wife, Carmen Rallos; and his sister-in-law, Concepcion Rallos (predecessor in interest of herein private respondents); and that in gross violation of the trust reposed upon him by Concepcion Rallos and after her death, by her heirs, the said Atty. Filemon Sotto, through sheer manipulation, fraudulent acts and means, non-existent and void decrees, fictitious sales and transfers, succeeded in causing the transfer of the ownership of the properties to the name of his wife Carmen Rallos, and finally to his name alone.

The complaint alleged five causes of action. Under the first cause of action, it is alleged that on January 25, 1913, Atty. Filemon Sotto as counsel, not only for the widow, Maria Fadullon Vda. de Rallos, but also for her daughters, Carmen and Concepcion both surnamed Rallos, filed a motion in said Special Proceedings No. 365-0 praying to relieve the executrix Maria Fadullon Vda. de Rallos from presenting a project of partition inasmuch as his clients had the desire to conserve pro-indiviso the properties in their possession, which motion 4 is as follows:

MOCION SOBRE LA DISPOSICION DE LOS BIENES

Maria Fadullon, conyuge viuda de Florentino Rallos, y sus hijas Carmen Rallos y Concepcion Rallos, unicas herederas de dicho finado comparecen hoy por medio del Abogado Filemon Sotto para exponer lo que sigue:

Que habiandose hecho por el Juzgado una declaracion de "unicas herederas" de los bienes del finado Florentino Rallos en favor de las comparecientes, y siendo todas ellas mayores de edad, pidan al Juzgado que se la releve a la Albacea de presenter cualquier proyecto de reparticion, pues las exponentes tienen el preposito de conservar por ahora "por indivisos" los susodichos bienes, en poder de ellas mismas.

Cebu, 25 Enero de 1913.

(SGD.) FILEMON SOTTO

Abogado de la mocionantes

Maria Fadullon y sus hijas Carmen y Concepcion Rallos manifiestan. Que son la mismas mencionadas en la preinserta mocion y que estan conformes con todo el contenido de la misma.

Cebu, 25 de Enero de 1913.

(SGD.) CONCHITA RALLOS DE TEVES

(SGD.) CARMEN J. RALLOS

(SGD.) MARIA F. VDA. DE RALLOS

Upon approval by the Court of the above quoted Mocion Sobre La Disposicion de los Bienes, the said probate proceedings was terminated.

The complaint further alleged that at that time Atty. Filemon Sotto (then known as Don Filemon Sotto) was still single, but he already enjoyed considerable prestige and influence and was well-known for his sagacity he having become a municipal councilor, municipal vice-mayor, fiscal and assemblyman; that he married Carmen J. Rallos on Sept. 27, 1913 and he later became senator, delegate to the Constitutional Convention and editor, besides being a practicing lawyer.

It is furthermore alleged that Atty. Filemon Sotto, having married Carmen Rallos, thereby virtually making him a member of the Rallos family, was looked upon as the head of the Rallos family to look after the properties inherited from the deceased Florentino Rallos including the 5 parcels of land hereinbefore mentioned, thereby establishing a trust relation with Don Filemon Sotto as trustee of the said properties for the benefit of his mother-in-law Maria Fadullon Vda. de Rallos, his wife Carmen Rallos de Sotto and sister-in-law Concepcion Rallos and the heirs of the latter, as cestuis que trust; that the aforesaid trust reposed upon him continued even after the deaths of Maria Fadullon Vda. de Rallos, Carmen Rallos de Sotto and Concepcion Rallos, the latter who married twice, first to Mariano Teves and second to Mariano Camara, and lasted up to Don Filemon Sotto's death on October 10,

1966; that on November 29, 1916, Don Filemon Sotto in violation of the trust reposed upon him by, and his duty as attorney for, the heirs of the deceased Florentino Rallos, illegally caused Decree No. 64101 dated Jan. 26, 1918 to be issued in Case No. 9, G.R.L.O No. 9465 of the Court of First Instance of Cebu on the entire Lot No. 7547 in question, in the name alone of Carmen Rallos de Sotto, the wife of Filemon Sotto, to the great prejudice and damage of the other co-owners thereof namely Maria Fadullon Vda. de Rallos and Concepcion Rallos de Camara; that said Decree is inexistent, null and void ab initio and without force and effect for it should have been issued not in the name of Carmen Rallos de Sotto but in the names of Maria Fadullon Vda. de Rallos — ½ share and the remaining ½ share thereof in the names of Carmen Rallos de Sotto and Concepcion Rallos de Camara in equal proportion of ¼ share each; that on February 9, 1918, as a result of the said inexistent, null and void Decree No. 64101, Original Certificate of Title No. 1034 was issued in the name of Carmen Rallos de Sotto, wife of Filemon Sotto; that sometime in 1922, Atty. Filemon Sotto had caused Lot No. 7547 to be transferred by his wife to the name of another person as a result of which O.C.T. No. 1034 was cancelled and Transfer Certificate of Title No. 6278 was issued, for fear that said lot might be attached in connection with the libel suit filed against the newspaper, La Revolucion edited by Don Filemon Sotto at the instance of the then Gov. Gen. Leonard Wood; that on June 5, 1933, Don Filemon Sotto caused Transfer Certificate of Title No. 6278 of Lot 7547 to be reconveyed not in the name of his wife but in his own name under Transfer Certificate of Title No. 12740 and was thereafter reconstituted administratively by the guardian of his properties as Transfer Certificate of Title No. RT-6890 in the name of Filemon Sotto, widower,and finally the present Certificate of Title No. 27710 was issued by the Register of Deeds in the name of Filemon Sotto, widower.

Under the second, third, fourth and fifth causes of action, respondents alleged specific similar violations of the trust relation reposed upon him with respect to the other 4 parcels of land in that Atty. Filemon Sotto illegally caused said lots to be registered either in the name of his wife Carmen Rallos de Sotto alone or jointly with Maria Fadullon Vda. de Rallos, to the prejudice of the other co-owner, Concepcion Rallos, and thereafter thru manipulations and fraudulent means, unregistered deeds of sale, fictitious and simulated transfers, incumbrances and reconstitution, these properties were in gross violation of the trust reposed upon him by the heirs, finally titled in the name alone of Carmen Rallos de Sotto and ultimately to that of his name as Don Filemon Sotto, widower.

Under the sixth cause of action, demand was made for the payment of rental income of the lots in question at P4,500.00 a month from Oct. 10, 1966 until delivery of possession and ownership of said lots as actual or compensatory damages, P20,000.00 as moral damages, P10,000.00 as exemplary damages and P20,000.00 for professional services.

Answering the complaint, petitioner Marcelo Sotto as administrator of the estate of Atty. Filemon Sotto, denied that there was any trust relation between Don Filemon Sotto on one hand and Maria Fadullon Vda. de Rallos, Carmen Rallos and Concepcion Rallos on the other; that granting that such relationship existed between Don Filemon Sotto and Concepcion Rallos, such a relationship could not have endured until the death of Don Filemon Sotto; that the decree of Lot No. 7547 was issued in the name of Carmen Rallos pursuant to an agreement among the heirs of Florentino Rallos that this parcel of land, together with the other parcels of land involved in this case, be adjudicated to Carmen Rallos as her share in the estate of Florentino Rallos, in the same manner that several parcels of land were likewise adjudicated to, and decrees issued in the name of Concepcion Rallos, as her share in the estate of Florentino Rallos; that the partition agreement adjudicating Lots No. 7547 and ½ each of Lots Nos. 842, 2179-A and Lots Nos. 123 and 1370 were adjudicated to Carmen Rallos and the other halves of Lot Nos. 842 and 2179 were adjudicated to Maria Fadullon Vda. de Rallos and decrees were accordingly issued later on by the Cadastral Court relative to the said properties of land in pursuance to said partition agreement; that more than 1 year having elapsed from their issuance, the decrees had become indefeasible; that the parcels of land, having been transferred to the purchasers for value and in good faith, the present action for reconveyance will not prosper; that the plaintiffs have no cause of action as the same is barred by prescription, laches and estoppel; and assuming that there was any

trust relation between Atty. Sotto and Concepcion Rallos, the trust was repudiated by Atty. Filemon Sotto a long time ago as shown by the series of transfers of these lots made by him personally. A counterclaim for exemplary damages, moral damages and attorney's fees were also set up.

The issues having been joined and trial concluded, the Court of First Instance of Cebu rendered its decision 5dismissing the complaint, holding that no express trust relation existed between Atty. Filemon

Sotto on one hand and Maria Fadullon Vda. de Rallos, Carmen Rallos and Concepcion Rallos on the other with respect to the lots in question; that there was no implied trust subsisting between Atty. Sotto and the said heirs and that there was actual partition between them whereby the 5 lots were given to Carmen Rallos as her share; that Carmen Rallos exercised acts of ownership over the 5 city lots in question to the exclusion of Concepcion Rallos and Maria Fadullon Vda. de Rallos, registering them in her name under the Torrens system; that Concepcion Rallos and her children after her death were thus notified constructively and actually by Carmen Rallos de Sotto's raising the flag of exclusive ownership and repudiation of the trust relation, if there was any, and since then the period of prescription of 10 years for bringing the action tolled against an implied trust. Laches or inaction on the part of Concepcion Rallos and her heirs have thus rendered their demand sale or no longer enforceable.

The heirs of Concepcion Rallos appealed to the Court of Appeals. In the Decision 6 promulgated Nov. 25, 1972, the Court of Appeals, Eighth Division, affirmed the judgment of the lower court. The appellate court agreed with the conclusion of the lower court that no express trust was created between Atty. Filemon Sotto and the heirs of Florentino Rallos by the mere signing of the Mocion in behalf of the heirs of Florentino Rallos; that when the surviving heirs of the deceased manifested in the petition filed by Atty. Filemon Sotto during the probate of the will that it is their desire not to partition the estate so as to preserve and maintain co-ownership over the properties, there can be no doubt that by direct and positive acts in holding the estate pro-indiviso, they intended to create an express trust among themselves; that Filemon Sotto who merely represented the heirs in that probate proceedings and filed the petition in court was not made a co-trustee by reason of his marriage to Carmen Rallos even if he was the lawyer of the Rallos family enjoying the prestige of being a prominent lawyer with political influence; that the estate of Florentino Rallos was already partitioned whether in 1925, prior or subsequent thereto, does not matter but the fact is that the Original Transfer Certificates of Title covering the 5 parcels of land were originally issued in the name of Carmen Rallos alone with respect to lot No. 7547 and jointly in the name of Carmen Rallos and Maria Fadullon Vda. de Rallos as regards Lots Nos. 842, 2179-A, 123 and 1370, to the exclusion of Concepcion Rallos: that there was repudiation of the trust relation among the co-owners, the date of which the Court can only be guided by the registration and issuance of the certificates of title when Carmen Rallos put the stakes of exclusive ownership over the lands and repudiated whatever trust was reposed in her by her co-heirs; that from the moment Carmen Rallos asserted her title over the questioned properties, the statute of limitation operated against her co-heirs, irrespective of plain Sotto vs. Teves, plaintiffs' pretension that they discovered much too late that the 5 lots were already titled in the name of Carmen Rallos, for such discovery is deemed to have taken place when the certificates of title to the properties were issued in favor of Carmen Rallos.

The above decision of the Appellate Court having been assailed on a Motion for Reconsideration 7 filed

by plaintiffs-appellants, now the herein private respondents, the Court of Appeals, Special Division of Five, reversed the said decision in its Resolution of Sept. 14, 1973. The Court, however, agreed with the ruling of the original decision declaring that the heirs of Florentino Rallos had "by manifesting to the probate court that it was their desire to preserve and maintain the ownership of the inherited properties thereby intended and created by direct and positive acts an express trust among themselves," as it was in conformity with the evidence and the law. 8 The court also noted that "(t)he parties ceased to debate the question as to whether or not an express trust was created by and among the Rallos heirs after our decision was promulgated. They came to agree that such a relationship was indeed created and that it existed. In the present motion for reconsideration, the dispute centers on the issue as to whether the express trust subsisted or it was repudiated. The parties are also in disaccord on the question as to whether Atty. Sotto should be considered a party in the express trust or should be regarded merely as a constructive trust." 9

The respondent Court of Appeals said that upon the facts and under the law, Atty. Sotto can be regarded as the constructive trustee of his wife and of the widow and descendants of Florentino Rallos; that Atty. Sotto's special relations with the Rallos heirs inhibited him from any act or conduct that could put his interests above or in direct collision with the interests of those who had reposed their trust and confidence in him.

The Court also found that the trust continued to subsist and did not terminate in 1925 by an adjudication of the lots to Carmen Rallos, for no such adjudication took place; that the registration of the lots was not the result of such adjudication or partition and said registration did not amount to a repudiation of the express trust. The titling of the lots in the names of Carmen Rallos and Maria Fadullon Vda. de Rallos was done in their capacities as trustees and not as absolute and exclusive owners thereof. In 1925 an oral agreement founded upon and in reaffirmation of the 1913 written agreement was reached among the Rallos heirs under which the 5 lots would remain under co-ownership of the 3 heirs, with Carmen Rallos as administratrix who would be entitled to a lifetime of usufruct of the properties but upon her death, ownership of the lots would devolve to Concepcion Rallos and her heirs. The Court ruled that Carmen Rallos could not legally deprive Concepcion Rallos and her heirs of their rights to the properties through the execution of a will in favor of her husband Filemon Sotto, considering that the same were trust properties held by her in trust for the benefit of Concepcion Rallos and her heirs, hence, Atty. Filemon Sotto must be deemed to have received the properties impressed with the subsisting trust, not for himself but for the benefit of the cestuis que trust.

Concluding, the Court said: "Upon the facts, under the applicable laws, and even on the basis of equity, plaintiffs are entitled to be declared the owners of the properties which admittedly originated from their ancestor and blood relative, their grandfather Florentino Rallos. As owners of the lots in question plaintiffs are also entitled to the fruits thereof. ... 10

Petitioner's motion for reconsideration having been denied, he now comes to Us to review the reversal of the original decision of the appellate court and makes the following assignment of errors:

I. The Court of Appeals erred in finding that an express trust was created among the heirs of Florentino Rallos by virtue of the Mocion Sobre la Disposicion de los Bienes filed by Filemon Sotto.

II. The Court of Appeals erred in not finding that the legal relationships created by the said Mocion Sobre La Disposicion De los Bienes was a simple co-ownership.

III. The Court of Appeals erred in finding that Don Filemon Sotto became a co-trustee by virtue of his subsequent marriage to Carmen Rallos.

IV. The Court of Appeals erred in not finding that the heirs of Florentino Rallos entered into an actual, effective and mutually accepted partition of the estate.

V. The Court of Appeals erred in finding that an express trust existed by the use of parol evidence, disregarding the weight of a torrens title and a public document mutually admitted by the parties.

VI. The Court of Appeals erred in not finding that even if an express trust was created, the same was expressly repudiated by both parties.

VII. The Court of Appeals erred not finding the respondents guilty of laches and estoppel.

The first and second assignments of error relate to the Mocion Sobre la Disposicion de los Bienes hence We are constrained to consider and resolve them together. Petitioner faults the Court of Appeals in finding that an express trust was created among the heirs of Florentino Rallos by virtue of the Mocion filed by Atty. Sotto, and in not finding that the legal relationship created by the Mocion was a simple co-ownership. Petitioner contends that the "motion is very clear and categorical and the only purpose of that Motion is to keep the properties in a co-ownership by the heirs of Florentino Rallos, not to create a relationship of express trust among the heirs." 11 He argues that "(s)ince the alleged source of express trust is a written document, applying therefore the document aforecited it is necessary that the document expressly state and provide for the express trust," 12 and that it is a contradiction in terms for the Court of Appeals to imply from the document an express trust.

Petitioner's contention is without merit. It may be true that the heirs of Florentino Rallos intended and desired to keep the properties in co-ownership pro-indiviso when they signed the Mocion filed in their behalf by Atty. Filemon Sotto in the probate proceedings to terminate the same but the legal effect of said agreement to preserve the properties in co-ownership as expressed in writing and embodied in the Mocion was to create a form of an express trust among themselves as co-owners of the properties. In the case of Castrillo, et al. vs. Court of Appeals, et al., 10 SCRA 549, the Supreme Court, speaking thru Chief Justice Makalintal, said that "co-ownership is a form of trust and every co-owner is a trustee for the other." In co-ownership, the relationship of each co-owner to the other co-owners is fiduciary in character and attribute. Whether established by law or by agreement of the co owners, the property or thing held pro-indiviso is impressed with a fiducial nature that each co-owner becomes a trustee for the benefit of his co-owners and he may not do any act prejudicial to the interest of his co-owners.

Under the law on Trusts, it is not necessary, as petitioner insists, that the document expressly state and provide for the express trust, for no particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. (Art. 1444, N.C.C.) An express trust is created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. Cuaycong et al. vs. Cuaycong, et al., G.R. No. L-21616, Dec. 11, 1967).

We agree with the findings of the respondent Court of Appeals that an express trust was created by the heirs of Florentino Rallos in respect to the properties in litigation when they agreed to preserve said properties in co-ownership among themselves as manifested and expressed into writing and filed as a pleading captioned Mocion Sobre la Disposicion de los Bienes. Incidentally, this is the same finding of the original decision of the Eight Division, same Court which was, however, reconsidered on other grounds. We find no reason to disturb this finding of the respondent Court, the same being in accordance with law and the facts as clearly established.

We now consider the third assignment of error. Petitioner contends that the Court of Appeals erred in finding that Don Filemon Sotto became a co-trustee by virtue of his subsequent marriage to Carmen Rallos. Petitioner, while admitting that as a lawyer some form of trust devolved upon the shoulders of Filemon Sotto; that as the husband of Carmen Sotto, some form of trust devolved on his shoulders; that because of overwhelming social and political standing during his time some form of trust was carried by Filemon Sotto, 13 argues that this is not the Trust that is defined in our Civil Code most especially if it is the express trust under Articles 1441 and 1444 which is relied upon by the respondent Court of Appeals, Special Division of Five. The trust on the shoulder of Filemon Sotto as the family lawyer in the intestate proceedings of Florentino Rallos was only coterminous with the duration of the proceedings itself. The trust on the shoulder of Filemon Sotto by virtue of his marriage to Carmen Rallos was only as much as the trust on the shoulders of the two husbands of Concepcion Rallos, Mariano Teves and Mariano Camara, and this trust is not the trust defined in our Civil Code on express trust." 14

We find no merit in petitioner's contention. In the first place, petitioner's argument is based on an incorrect assumption. Petitioner assumes that the respondent Court of Appeals found the existence of an express trust between Atty. Filemon Sotto and the heirs of Florentino Rallos, which is not correct.

What the appellate court held is that Atty. Sotto can be regarded as the constructive trustee of his wife and of the widow and descendants of Florentino Rallos. In fact the Court declared, thus —

Upon the record, we have no doubt but that there existed more than mere professional relationship of attorney and client between Atty. Sotto and the members of the family of Florentino Rallos. Shortly after the closure of the testate proceeding, Atty. Sotto contracted marriage with one of the daughters of Florentino Rallos. The attorney thereby became not only a family lawyer but also an actual member on the Rallos family by affinity. By reason of his marriage to Carmen Rallos, and on account of his prestige and tremendous social and political influence, Atty. Sotto enjoyed and exercised a personal, domestic, social, political and moral ascendancy and superiority not only over his wife but also over Maria Fadullon, Concepcion Rallos, and the latter's children. The evidence reveals that the Ralloses looked up to Atty. Sotto as protector and benefactor, as one on whom they could repose their trust and confidence and who would take care of the properties inherited from Florentino Rallos, and on his part, Atty. Sotto acknowledged his position as protector of the rights and interests of the Rallos family. Like a pater familias, he attended to the financial and medical needs of the direct descendants of Florentino Rallos and Maria Fadullon (Exhs. U and T). When one of the five parcels in question, Lot 7547, was being claimed by a certain Manuel Ocejo, Atty. Sotto represented the Rallos family as defendants in Civil Case No. 1641 of the Court of First Instance of Cebu, and the lot was adjudicated in favor of the Rallos family. The acts and conduct of the Ralloses and Atty. Sotto fostered a close and fiduciary relationship between them. Upon the facts and under the law, Atty. Sotto can be regarded as the constructive trustee of his wife and of the widow and descendants of Florentino Rallos. For the settled rule is that:

The relation between parties, in order to be a fiduciary relation" need not be legal, but may be moral, social, domestic or merely personal; and where by reason of kinship, business association, disparity in age or physical or mental condition or other reason, the grantee is in an especially intimate position with regard to another and the latter reposes a degree of trust and confidence in the former, confidential relationship exists which prohibits the one entrusted from seeking a selfish benefit for himself during the course of relationship, and affords a basis for imposing a constructive trust. (89 CJS Art. 151, pp. 1054-1057)

Atty. Sotto's special relationship with the Rallos heirs inhibited him from any act or conduct that would put his interests above, or in direct collision with, the interests of those who had reposed their trust and confidence in him." 15

Secondly, it is also not quite correct for petitioner to claim that the respondent Court ruled that Don Filemon Sotto became a co-trustee by virtue of his subsequent marriage to Carmen Rallos. The truth of the matter is that, according to the Court, Atty. Sotto became a constructive trustee not only by reason of his marriage to Carmen Rallos but also on account of his prestige and tremendous social and political influence, also because Atty. Sotto enjoyed and exercised a personal, domestic, social, political and moral ascendancy and superiority over his wife, over Maria Fadullon, Concepcion Rallos and the latter's children, besides being the protector of the rights and interests of the Rallos family acting like a pater familias attending to their financial and medical needs, as well as the family lawyer.

We are in full accord with these findings and conclusion of the respondent Court as the same are final, conclusive and binding upon Us, there being no exceptional circumstances or reasons to review or revise the same.

With respect to the fourth assignment of error, petitioner impugns the Court of Appeals in not finding that the heirs of Florentino Rallos entered into an actual, effective and mutually accepted partition of the estate. Petitioner claims that partition of the inherited properties took place between the heirs in 1925 in accordance with which the 5 parcels of land under litigation were adjudicated to Carmen Rallos and that by reason of the partition and adjudication, the lots were granted to Carmen Rallos and titles were secured and issued in her favor and name.

On the other hand, the private respondents claim that there was such a partition agreed upon in 1925 when, on the occasion of the visit of Maria Fadullon Vda. de Rallos and Carmen Rallos to Concepcion Rallos after the latter's delivery of a child, it was agreed that the properties in Carmen, Cebu and one lot in Basak, Cebu City, all assessed at P9,000.00 were to remain with Concepcion Rallos, while the 5 lots now in litigation, then owned in common among the three heirs, and assessed at P55,000.00 would be administered by Carmen Rallos, the fruits thereof to be received by Carmen Rallos during her lifetime and that upon the death of Carmen the properties will devolve to Concepcion and to her children.

The respondent Court rejected petitioner's claim of partition and adjudication, declaring that —

We cannot embrace the theory advanced by defendant, which is bereft of evidentiary support, that in 1925, on the occasion of the visit paid by Maria Fadullon and Carmen Rallos to Concepcion Rallos, the five lots in question were adjudicated to Carmen Rallos. To begin with, there is no concrete evidence of record on which to lay such claim. It is our belief that the realities of the situation of the parties and the practicable and equitable utility of the inheritance of Florentino Rallos are better determinants of the question as to whether defendant's theory would be accepted or rejected. Carmen Rallos was admittedly without any child to support. On the other hand, Concepcion Rallos was burdened with many children. The lots in Carmen and Basak, which were allowed to be retained by Concepcion, were assessed at a mere P9,000.00, whereas the five lots in question had an assessed value of P55,000.00 in 1925. It is very difficult to believe that Carmen Rallos and Maria Fadullon had gone to Concepcion, on the occasion when another child had just been added to the latter's burden, to tell her that they were depriving her of a valuable share in the inheritance, such share to be given to Carmen who was childless. Such theory of defendant is utterly un Filipino and is thoroughly irreconcilable with our customs and ways of treating close relatives. The more probable and believable is the testimony of Pilar Teves that Maria Fadullon and Carmen Rallos came to Concepcion, as Magis bearing gifts, to tell her that the five lots would go to her and to her children upon Carmen's death. The testimony of Pilar jibes with the evidence that Florentino Rallos had expressed the wish that a portion of the inherited properties should be devoted to defray the expenses for the education of his grandchildren. " 16

We uphold the stand of the respondent Court of Appeals, Special Division of Five in giving credence and belief to respondents' claim of partition as testified to by Pilar Teves, one of the private respondents, because the Court's findings and its ruling is based on the grounds of human experience, the ordinary course of things and our own native customs, culture and tradition to revere the memory of our ancestor by keeping intact the estate in inheritance as long as possible, and to help one's brothers and sisters to benefit from the sweat and toil of our parents, rather than dispossess them or given the inheritance away to perfect strangers, strangers to family ties and filial affection. It is unconscionable and contrary to morals that a parent should deprive his children of what lawfully belongs to them. (De Guzman vs. Aquino, 34 SCRA 236).

Petitioner's version of the partition and adjudication is, from a factual viewpoint, clearly untenable; it is even inconsistent with his evidence. The facts show that all the lots were registered originally before the alleged partition and adjudication in 1925. Lots 123 and 1370 were registered on Sept. 23, 1913; Lot 842 on Feb. 5, 1918; Lot 2179-A on June 17, 1921 and Lot 7547 on February 9, 1918. Base on their respective dates, the acts of registration preceded the supposed partition and adjudication which inexplicably reversed the usual order of occurrence which is, that partition and adjudication normally precede registration. More than that, the first 4 lots mentioned above were registered jointly in the names of Maria Fadullon Vda. de Rallos and Carmen Rallos, which strongly belied petitioner's contention that all the 5 lots were adjudicated to Carmen Rallos alone. The conclusion is inescapable that petitioner's version did not take place and that the registration of the lots could not have resulted from the supposed partition and adjudication.

As We have heretofore stressed, the findings of fact of the Court of Appeals are conclusive. Likewise, question of credibility is left to the Court of Appeals. (De Garcia vs. Court of Appeals, 37 SCRA 129). Appreciation of evidence is within the domain of the Court of Appeals because its findings of facts are not reviewable by the Supreme Court. (Talosig vs. Vda. de Nieba, 43 SCRA 472; Tingco vs. de la Merced, 58 SCRA 89). The Supreme Court will not review findings of facts of the Court of Appeals, (Evangelista & Co. vs. Santos, 51 SCRA 416).

On appeal from a decision of the Court of Appeals, the findings of fact made in said decision are final, except: (1) When the conclusion is a finding grounded entirely on speculations, surmises or conjectures; (2) When the inference is manifestly mistaken, absurd or impossible; (3) When there is a grave abuse of discretion; (4) When the judgment is based on a misapprehension of facts; (5) When the findings of fact are conflicting, (6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee. (Napolis vs. Court of Appeals, 43 SCRA 301). In the case at bar, We are convinced and satisfied that the above exceptions do not obtain.

Petitioner exacerbates that the Court of Appeals erred in finding that an express trust existed by the use of parol evidence, disregarding the weight of a torrens title and a public document mutually admitted by the parties, in his fifth assignment of error.

We reject petitioner's contention as baseless. In the first place, the respondent Court did not find that an express trust existed by the use of parol evidence. Actually, the Court, on this point said: "On the basis of undisputed facts, we held in our decision that the heirs of Florentino Rallos, by manifesting to the probate court that it was their desire to preserve and maintain the co-ownership over the inherited properties, thereby intended and created, by direct positive acts, an express trust among themselves. (pp. 19, 24, Decision). It is our view that this holding should be maintained because it is in conformity with the evidence and the law." 17 In a later portion of the Resolution appealed from, the Court said: "As early as in 1913, the Rallos heirs had already agreed expressly and in writing that the five parcels shall remain in co-ownership, and that in regard to them each one of the heirs shall be a trustee for the others." 18

In the second place, the oral testimony of Pilar Teves simply affirmed the existence of such trust relation; it gave proof that the heirs desired to continue the express trust and co-ownership over the five lots. It was not necessary that the heirs create a new agreement of co-ownership over the said properties. They merely reiterated their written agreement made in 1913 that the five parcels would be preserved in co-ownership but made provisions for their administration, collection of rentals and final disposition upon the death of Carmen Rallos.

There is, therefore, no violation of Art. 1443, N.C.C which provides that "no express trust concerning an immovable or any interest therein may be proved by parol evidence," as the same is not applicable herein.

As to the pretension that the respondent appellate court disregarded the weight of a torrens title and a public document mutually admitted by the parties, the latter refering to the will executed by Carmen Rallos in 1942 bequeathing all her properties to her husband, Atty. Filemon Sotto, petitioner's reasoning holds no water because from the very nature of a trust relation which existed between Carmen Rallos and her co-owners, she cannot obtain and secure a torrens title to the properties in her name much less dispose of them by testament to her husband, a constructive trustee, to the prejudice and deprivation of the rights and interests of said co-heirs.

A fiduciary relationship may exist even if the title to the property subject to the trust appears in the name of the trustee alone, because in cases of trusteeship, the legal title usually appears in the name of the trustee, while the equitable title remains with the cestui que trust. (Palma vs. Cristobal, 77 Phil. 712). True it is that Torrens titles were issued in the name of Carmen Rallos, but the principle holds that a trustee who takes a Torrens title in his name cannot repudiate the trust by relying on the registration, which is one of the well- known stations upon the finality of a decree of title. (Alvarez, et al. vs. E spiritu, L-18833, August 14, 1965, 14 SCRA 892; Paterno Vda. de Padilla vs. Bibby de Padilla, 74 Phil. 377; Nery vs. Lorenzo, L-23096, April 27, 1972, 44 SCRA 431, 439 and the cases cited therein).

Neither an the will executed by Carmen Rallos deprive the private respondents of their ownership over the five parcels of land. These lots were trust properties; Carmen Rallos was holding them in trust for her sister Concepcion Rallos and the latter's children. Not being the absolute owner thereof, Carmen Rallos could not legally convey their ownership by including them in their will. To all intents and purposes, the will and last testament of Carmen Rallos was merely a vehicle of an existing trust and therefore, Atty. Filemon Sotto must be deemed to have received the properties not for himself but for the benefit of the cestui que trust. And as a trustee of these trust properties, Atty. Sotto never alienated or disposed any of these properties during his lifetime, thereby recognizing his position as trustee and that he held them for the benefit and interest of the cestuis que trust.

On the penultimate and ultimate assignments of error, petitioner fulminates against the appellate court in not finding that, assuming that an express trust was created, the same was expressly repudiated by the parties and in not finding respondents guilty of laches and estoppel.

The resolution of these supposed errors, the 6th and the 7th, must follow as a consequence to Our ruling a propos petitioner's 4th and 5th assignments of error. We sustained the respondent Court in rejecting petitioner's version of the partition and adjudication and that the registration of the lots could not have resulted from the supposed partition and adjudication. We affirmed that the express trust and co-ownership over the 5 parcels of land created and agreed in 1913 by and among the Rallos heirs did not terminate in 1925 but subsisted and was maintained by them thereafter. We also declared that the registration of the 4 lots in the names of Carmen Rallos and Maria Fadullon Vda. de Rallos and 1 lot in favor of Carmen Rallos alone was done in their capacities as trustees and not as absolute or exclusive owners, and not only in their own behalf and benefit but also for the other co-owner, Concepcion Rallos.

With these previous pronouncements in mind, We must overrule petitioner's stand that the trust was expressly repudiated by the parties although he makes capital of the fact of registration of the properties in the names of Carmen Rallos and Maria Fadullon Vda. de Rallos, contending strongly that such registration is evidence of repudiation of the express trust. The rationale of Our conclusion in meeting petitioner's 4th assignment of error, including the authorities cited thereunder, holds with equal force and persuasion over petitioner's contention of alleged repudiation by the parties. The registration of the property in the name of the trustee in possession thereof must be deemed to have been effected for the benefit of the cestui que trust. (Severino vs. Severino, 44 Phil 343; Baretto vs. Tuason, 50 Phil. 888).

Petitioner points to the fact that Concepcion Rallos had expressly repudiated the trust by selling the Basak properties which were converted into a subdivision, as well as to acts of exclusive ownership over the properties of the estate by each of the co-owners to show that the trust relationship and co-ownership was repudiated, renounced and terminated when the parties agreed to an actual partition of the estate. Petitioner's advocation is futile. Besides the falsity of its basis for the reason that We found no partition as theorized by petitioner and that the trust relation subsisted and was maintained in 1925 and thereafter, the acts of exclusive ownership pointed by petitioner do not appear to be clear, open and unequivocal repudiation of the trust. Thus —

1. The sale by Concepcion Rallos of some of the properties originally forming part of the estate of Florentino Rallos cannot be considered as a repudiation of the express trust by Concepcion herself. Said properties were given to her in the aforementioned agreement testified to by Pilar Teves and did not form part of the five parcels of land over which an express trust was established in 1913 and reiterated in 1925.

2. With respect to Lots 123 and 1370, Atty. Filemon Sotto, soon after the creation of the express trust in 1913, caused the registration of these two lots and the issuance of Original Certificate of Title No. 251-253 dated Sept. 23, 1913 in the names of Maria Fadullon and Carmen Rallos, to the exclusion of Concepcion Rallos. Thereafter, Atty. Sotto caused the deed of sale to be executed by Maria Fadullon whereby she purportedly sold her share in the two lots to Carmen Rallos, and by virtue of such deed, Atty. Sotto was able to obtain Transfer Certificate of Title in the name of his wife Carmen Rallos. That the registration of these two lots took place in 1913, barely 8 months after the creation of the express trust, and being inconsistent with the terms of said Motion that they preserve the inheritance in co-ownership and in equal shares, do not clearly show that Carmen Rallos intended to repudiate their original agreement as contained in the Mocion. Since the titles were issued in the name of Carmen Rallos thru the professional services of her lawyer-husband Atty. Filemon Sotto, it is more believable and consistent with the express trust relation created under the Mocion dated and filed on Jan 25, 1913 that the title was taken in the name of Carmen Rallos but for the benefit of the other heirs, namely Maria Fadullon Rallos and Concepcion Rallos.

3. With respect to Lot 2179-A, the Original Certificate of Title was obtained by Atty. Filemon Sotto on June 17, 1921 in the name of Maria Fadullon de Rallos and Carmen Rallos, again excluding Concepcion Rallos. When Gov. Gen. Wood sued Atty. Sotto for damages in the famous Wood-Sotto libel case, Atty. Sotto, fearful of the issuance of attachments proceedings, caused Maria Fadullon and Carmen Rallos to sell Lot 2179-A in favor of the spouses Agustin Jereza and Beatriz de Jereza, in whose names the Original Certificate of Title were then transferred. However, Atty. Sotto obliged the Jerezas to execute a counter deed of sale in his favor and consequently a Transfer Certificate of Title was issued in the name of Atty. Filemon Sotto. The fictitious transfer of the lot to the Jereza spouses which was proved by the testimony of the Private Secretary of Atty. Filemon Sotto does not indicate a clear repudiation of the trust or of the co-ownership; the alleged repudiation was not open, public and deliberate. The acts, on the contrary, were secretive and fraudulent assertions of exclusive ownership.

4. With regards to Lot 842, the same was registered on Feb. 5, 1918 in the name of Carmen Rallos and her mother Maria Fadullon Rallos, also to the exclusion of Concepcion Rallos. A deed of sale executed by Maria Fadullon purported to sell her ½ share of the lot in favor of Concepcion Rallos. This deed was among the documents kept in the private files of Atty. Sotto which were delivered by Cesar Sotto to the respondents. This deed was not registered in the Office of the Register of Deeds but was kept secret in the files of Atty. Sotto. Thereafter, another deed was registered whereby Maria Fadullon sold her share to Carmen Rallos and upon the registration of the latter deed, title was consolidated in the name of Carmen Rallos, who was issued a new Transfer Certificate of Title. That the deed of sale supposedly asserting a claim of ownership and transfer thereof was kept under seal of secrecy cannot be considered as unequivocal acts of repudiation of the trust and of the co-ownership. Although the title to the lot was finally consolidated in the name of Carmen Rallos thru this secret manner, We must

regard the registration to be for the benefit of the other co-heirs who cannot be prejudiced by such furtive and stealthy act.

The finding of the respondent Court of Appeals that "(t)he issuance of titles and the execution of the purported sales and transfers, which all culminated in Atty. Sotto's acquisition of titles in his name, occurred during the existence of the express trust, and were shrouded by a cloud of secrecy, at least as far as Concepcion Rallos was concerned. AU the papers and documents pertaining to the issuance of titles and to the transfers and sales were kept in Atty. Sotto's possession, and concealed from the knowledge of Concepcion Rallos. At the time Concepcion Rallos was being deprived of a valuable share in the inheritance, she was kept completely in the dark. Under the facts, appellee cannot rely on the certificates of title in the names of Atty. Sotto to defeat the plaintiffs' right and cause of action," 19 clearly appears to be correct and well-founded that the same will not be disturbed by Us in the present petition for review on certiorari.

In Diaz, et al. vs. Gorricho and Aguado Phil. 261, the Supreme Court, speaking thru Justice J.B.L. Reyes, said. The express trusts disable the trustee from acquiring for his own benefit the property committed to his management or custody, at least while he does not openly repudiate the trust, and makes such repudiation known to the beneficiary or cestui que trust. For this reason, the old Code of Civil Procedure (Act 190) declared that the rules on adverse possession do not apply to "continuing and subsisting" (i.e., unrepudiated) trusts."

In Valdez, et al vs. Olarga et al., 51 SCRA 71, the Supreme Court, with Acting Chief Justice Makalintal asponente, held: "And from the standpoint of acquisitive prescription, or prescription of ownership, this Court has held in numerous decisions involving fiduciary relations such as those occupied by a trustee with respect to thecestui que trust that as a general rule the former's possession is not adverse and therefore cannot ripen into a title by prescription. Adverse possession in such a case requires the concurrence of the following circumstances: (a) that the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) that such positive acts of repudiation have been made known to the cestui que trust and (c) that the evidence thereon should be clear and conclusive."

In the light of the above doctrinal , We rule that the registration of the lots in the names of Carmen Rallos and her mother Maria Fadullon Vda de Rallos and their subsequent transfers and consolidation to Carmen Rallos' name alone in a manner shown to be fictitious, fraudulent and secretive, thereby keeping the cestuis que trust in the dark did not constitute acts of repudiation of the express trust. Such registrations were ineffective and not binding upon the cestui que trust. We are persuaded and convinced that the circumstances required by said decisions are not present in the case at bar.

Petitioner finally raises a number of points which according to him constitute acts of repudiation by Concepcion Rallos such as her failure and that of her heirs to oppose the probate of the will of Carmen and that this failure also constitute laches; that the failure of the three inventories of properties submitted in the intestate proceedings of Concepcion Rallos to include the five parcels of land in question is a repudiation; that this omission has also placed the respondents in estoppel to claim now the properties; and that the failure of respondents to take any action to recover the properties during the lifetime of Filemon Sotto constitute laches.

Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. (Tijam, et al. v. Sibonghanoy, et al., No. L-21450, April 15, 1968, 23 SCRA 29, 35). The defense of laches is an equitable one and does not concern itself with the character of the defendant's title, but only with whether or not by reason

of the plaintiff's long inaction or inexcusable neglect he should be barred from asserting his claim at all. (Pabalate v. Echarri, Jr., 35 SCRA 518).

Estoppel, on the other hand, rests on this rule: whenever a party has, by his declaration, act or omission, intentionally and deliberately led the other to believe a particular thing true, and to act, upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it." (De Castro vs. Ginete, L-30058, March 28, 1969, 27 SCRA 623). Estoppel has its origin in equity and being based on moral and natural justice, finds applicability whatever and whenever the special circumstances of a case so demand (Castrillo vs. Court of Appeals, L-18046, March 31, 1964, 10 SCRA 549; Beronilla vs. Government Service Insurance System, L-21723, November 26, 1970, 36 SCRA 44).

In determining whether a delay in seeking to enforce a right constitutes laches, the existence of a confidential relationship between the parties is an important circumstance for consideration, a delay under such circumstances not being so strictly regarded as where the parties are strangers to each other. The doctrine of laches is not strictly applied between near relatives, and the fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise unreasonable delay.

The claim that the heirs of Concepcion Rallos are guilty of laches and are estopped from claiming the properties deserves scant consideration, for in fiduciary relationship, the beneficiaries have the right to rely on the trust and confidence reposed in the trustee. In the case at bar, there being no effective repudiation of the express trust created by and among the Rallos heirs, the defense of laches invoked by petitioner is unvailing. (Buencamino, et al., G.R. No. L-19012, October 30, 1967). Moreover, under the facts established and showing the complete dominance of Atty. Sotto over the heirs and descendants of the Rallos family, the confidential relationship between the parties connected by ties of marriage and the reliance of the heirs with complete and absolute confidence in their uncle-in-law, Atty. Sotto, who, however, kept the heirs in total ignorance and suppressed from them the real truth regarding said properties that they were already registered in Atty. Sotto's name as finally revealed to them by Cesar Sotto, the nephew and protegee of Atty. Sotto and were in danger of being lost to total strangers, the doctrine of laches is not strictly applicable. Furthermore, Atty. Sotto received from his wife, Carmen Rallos, the properties under her will fully impressed with their fiduciary character and in the full knowledge that said properties were trust properties as far back in 1913 when he drafted and prepared the Mocion Sobre la Disposicion de los Bienes and filed the same in the probate proceedings. This knowledge he carried into his marriage with Carmen Rallos and throughout his lifetime so that the will executed by Carmen Rallos bequeathing the properties to her husband, Atty. Sotto, was merely a vehicle of an existing trust. He thereby became a trustee of the trust properties, not as an innocent third party and neither for a valuable consideration. Notwithstanding the fact that the titles to the properties were ultimately transferred to the name of Atty. Filemon Sotto, widower, through administrative proceedings, the titling thereof must be regarded as for the benefit and interest of thecestui que trust, the private respondents herein.

In passing, it must be mentioned here that Don Filemon Sotto was a distinguished figure in the political history of the nation, having been elected a delegate from Cebu to the Constitutional Convention that formulated the 1935 Philippine Constitution. In recognition of his wisdom and sagacity, Don Filemon was chosen Chairman of the Committee of Seven that drafted and sponsored the 1935 Philippine Constitution. It is to the great credit and commendation to the moral integrity of Don Filemon that having preserved and maintained the properties in question under his name without alienating or transferring them to third persons, and realizing the responsibilities of the trust reposed in him, he must have intended said properties to be restored to their rightful owners who are the Rallos heirs, the private respondents herein.

We are satisfied that respondents, upon discovery of the fraudulent transfers, fictitious sales and concealed deeds relating to the trust properties which were revealed to them by Cesar Sotto, the very nephew and protegee of Atty. Filemon Sotto and guardian appointed over the latter's estate, promptly and seasonably filed the present action for reconveyance. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to he determined according to its particular circumstances. The question of laches is addressed to the sound discretion of the court and since laches is an equitable doctrine, its application is controlled by equitable considerations. It cannot be invoked to defeat justice or to perpetrate fraud and injustice. It would be rank injustice and patently iniquitous to deprive the lawful heirs of their rightful inheritance.

Private respondents are entitled to the relief prayed for, which is for the reconveyance of the properties to them. Since their grandmother, Maria Fadullon Vda. de Rallos die in 1938, her pro-indiviso share in the properties then owned in co-ownership descended by intestacy to her daughters, Concepcion and Carmen. Upon Carmen's death in 1945 without issue, the properties devolved to Concepcion pursuant to their agreement in 1925 as testified to by Pilar Teves. When Concepcion Rallos died, her heirs, who are now the private respondents, are entitled to these properties and should be declared owners thereof. They are also entitled to the fruits thereof, the rentals of the properties, including damages and attorney's fees as assessed by the appellate court which We find just and reasonable.

WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby affirmed, with costs against the petitioner.

SO ORDERED

Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-19060 May 29, 1964

IGNACIO GERONA, MARIA CONCEPCION GERONA, FRANCISCO GERONA and DELFIN GERONA,petitioners, vs. CARMEN DE GUZMAN, JOSE DE GUZMAN, CLEMENTE DE GUZMAN, FRANCISCO DE GUZMAN, RUSTICA DE GUZMAN, PACITA DE GUZMAN and VICTORIA DE GUZMANrespondents.

Manuel J. Serapio for petitioners. D. F. Castro and Associates for respondents.

CONCEPCION, J.:

Appeal by certiorari from a decision of the Court of Appeals, affirming that of the Court of First Instance of Bulacan.

In the complaint, filed with the latter court on September 4, 1958, petitioners herein, namely, Ignacio, Maria Concepcion, Francisco and Delfin, all surnamed Gerona, alleged that they are the legitimate children of Domingo Gerona and Placida de Guzman; that the latter, who died on August 9, 1941 was a legitimate daughter of Marcelo de Guzman and his first wife, Teodora de la Cruz; that after the death of his first wife, Marcelo de Guzman married Camila Ramos, who begot him several children, namely, respondents Carmen, Jose, Clemente, Francisco, Rustica, Pacita and Victoria, all surnamed De Guzman; that Marcelo de Guzman died on September 11, 1945; that subsequently, or on May 6, 1948, respondents executed a deed of "extra-judicial settlement of the estate of the deceased Marcelo de Guzman", fraudulently misrepresenting therein that they were the only surviving heirs of the deceased Marcelo de Guzman, although they well knew that petitioners were, also, his forced heirs; that respondents had thereby succeeded fraudulently in causing the transfer certificates of title to seven (7) parcels of land, issued in the name of said deceased, to be cancelled and new transfer certificates of title to be issued in their own name, in the proportion of 1/7th individual interest for each; that such fraud was discovered by the petitioners only the year before the institution of the case; that petitioners forthwith demanded from respondents their (petitioners) share in said properties, to the extent of 1/8th interest thereon; and that the respondents refused to heed said demand, thereby causing damages to the petitioners. Accordingly, the latter prayed that judgment be rendered nullifying said deed of extra-judicial settlement, insofar as it deprives them of their participation of 1/18th of the properties in litigation; ordering the respondents to reconvey to petitioners their aforementioned share in said properties; ordering the register of deeds to cancel the transfer certificates of title secured by respondents as above stated and to issue new certificates of title in the name of both the petitioners and the respondents in the proportion of 1/8th for the former and 7/8th for the latter; ordering the respondents to render accounts of the income of said properties and to deliver to petitioners their lawful share therein; and sentencing respondents to pay damages and attorney's fees.

In their answer, respondents maintained that petitioners' mother, the deceased Placida de Guzman, was not entitled to share in the estate of Marcelo de Guzman, she being merely a spurious child of the latter, and that petitioners' action is barred by the statute of limitations.

After appropriate proceedings, the trial court rendered a decision finding that petitioners' mother was a legitimate child, by first marriage, of Marcelo de Guzman; that the properties described in the complaint belonged to the conjugal partnership of Marcelo de Guzman and his second wife, Camila Ramos; and that petitioners' action has already prescribed, and, accordingly, dismissing the complaint without costs. On appeal taken by the petitioners, this decision as affirmed by the Court of Appeals, with costs against them.

Petitioners maintain that since they and respondents are co-heirs of the deceased Marcelo de Guzman, the present action for partition of the latter's estate is not subject to the statute of limitations of action; that, if affected by said statute, the period of four (4) years therein prescribed did not begin to run until actual discovery of the fraud perpetrated by respondents, which, it is claimed, took place in 1956 or 1957; and that accordingly, said period had not expired when the present action was commenced on November 4, 1958.

Petitioners' contention is untenable. Although, as a general rule, an action for partition among co-heirs does not prescribe, this is true only as long as the defendants do not hold the property in question under an adverse title (Cordova vs. Cordova, L-9936, January 14, 1948). The statute of limitations operates as in other cases, from the moment such adverse title is asserted by the possessor of the property (Ramos vs. Ramos, 45 Phil. 362; Bargayo v. Camumot, 40 Phil. 857; Castro v. Echarri, 20 Phil. 23).

When respondents executed the aforementioned deed of extra-judicial settlement stating therein that they are the sole heirs of the late Marcelo de Guzman, and secured new transfer certificates of title in their own name, they thereby excluded the petitioners from the estate of the deceased, and, consequently, set up a title adverse to them. And this is why petitioners have brought this action for the annulment of said deed upon the ground that the same is tainted with fraud. 1äwphï1.ñët

Although, there are some decisions to the contrary (Jacinto v. Mendoza, L-12540, February 28, 1959; Cuison v. Fernandez, L-11764, January 31, 1959; Maribiles v. Quinto, L-10408, October 18, 1956; and Sevilla v. De los Angeles, L-7745, November 18, 1955), it is already settled in this jurisdiction that an action for reconveyance of real property based upon a constructive or implied trust, resulting from fraud, may be barred by the statute of limitations (Candelaria v. Romero, L-12149, September 30, 1960; Alzona v. Capunita, L-10220, February 28, 1962).

Inasmuch as petitioners seek to annul the aforementioned deed of "extra-judicial settlement" upon the ground of fraud in the execution thereof, the action therefor may be filed within four (4) years from the discovery of the fraud (Mauricio v. Villanueva, L-11072, September 24, 1959). Such discovery is deemed to have taken place, in the case at bar, on June 25, 1948, when said instrument was filed with the Register of Deeds and new certificates of title were issued in the name of respondents exclusively, for the registration of the deed of extra-judicial settlement constitute constructive notice to the whole world (Diaz v. Gorricho, L-11229, March 29, 1958; Avecilla v. Yatco, L-11578, May 14, 1958; J.M. Tuason & Co., Inc. v. Magdangal, L-15539, January 30, 1962; Lopez v. Gonzaga, L-18788, January 31, 1964).

As correctly stated in the decision of the trial court:

In the light of the foregoing it must, therefore, be held that plaintiffs learned at least constructively, of the alleged fraud committed against them by defendants on 25 June 1948 when the deed of extra-judicial settlement of the estate of the deceased Marcelo de Guzman was registered in the registry of deeds of Bulacan, Plaintiffs' complaint in this case was not filed until 4 November 1958, or more than 10 years thereafter. Plaintiff Ignacio Gerona became of age on 3 March 1948. He is deemed to have discovered defendants' fraud on 25 June 1948

and had, therefore, only 4 years from the said date within which to file this action. Plaintiff Maria Concepcion Gerona became of age on 8 December 1949 or after the registration of the deed of extra-judicial settlement. She also had only the remainder of the period of 4 years from December 1949 within which to commence her action. Plaintiff Francisco Gerona became of age only on 9 January 1952 so that he was still a minor when he gained knowledge (even if only constructive) of the deed of extra-judicial settlement on 25 June 1948. Likewise, plaintiff Delfin Gerona became of legal age on 5 August 1954, so that he was also still a minor at the time he gained knowledge (although constructive) of the deed of extra-judicial settlement on 25 June 1948. Francisco Gerona and Delfin Gerona had, therefore, two years after the removal of their disability within which to commence their action (Section 45, paragraph 3, in relation to Section 43, Act 190), that is, January 29, 1952, with respect to Francisco, and 5 August 1954, with respect to Delfin.

WHEREFORE, the decision of the Court of Appeals is hereby affirmed, with costs against petitioners herein. It is so ordered.